AETNA VARIABLE ENCORE FUND INC, 485BPOS, 1997-04-11

AETNA VARIABLE ENCORE FUND INC
485BPOS, 1997-04-11

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As filed with the Securities and Exchange File No. 2-53038
Commission on April 11, 1997 File No. 811-2565

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 42

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 33

AETNA VARIABLE ENCORE FUND
--------------------------

151 Farmington Avenue RE4A, Hartford, Connecticut 06156
-------------------------------------------------------
(860) 273-7834

Susan E. Bryant, Counsel
Aetna Life Insurance and Annuity Company
151 Farmington Avenue RE4A, Hartford, Connecticut 06156
-------------------------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

X on May 1, 1997, pursuant to paragraph (b) of Rule 485
-----

Aetna Variable Encore Fund has registered an indefinite number of its securities
under the Securities Act of 1933 pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Registrant filed its Rule 24f-2 Notice for its fiscal
year ended December 31, 1996 on February 28, 1997.

<PAGE>

Aetna Variable Encore Fund
Cross-Reference Sheet

Form N-1A
Item No. Part A Caption in Prospectus
-------- ------ ---------------------

1. Cover Page.......................... Cover Page

2. Synopsis............................ Not Applicable

3. Condensed Financial Information..... Financial Highlights

4. General Description of Registrant... Investment Objective;
Investment Policies and
Restrictions

5. Management of the Fund.............. Management of the Fund

5A. Management's Discussion of Fund Not Applicable
Performance.........................

6. Capital Stock and Other Securities.. General Information;
Tax Matters

7. Purchase of Securities Being Offered Management of the Fund;
Purchase and Redemption of
Shares;
Net Asset Value

8. Redemption or Repurchase............ Purchase and Redemption of
Shares;
Net Asset Value

9. Legal Proceedings................... Not applicable

<PAGE>

<TABLE>
<CAPTION>
Form N-1A Caption in Statement of
Item No. Part B Additional Information
-------- ------ ----------------------

<S> <C> <C>
10. Cover Page.......................... Cover Page

11. Table of Contents................... Table of Contents

12. General Information and History..... General Information and History

13. Investment Objectives and Policies.. General Information and History;
Investment Objective and
Policies of the Fund;
Description of Various
Securities and Investment
Techniques

14. Management of the Fund.............. Trustees and Officers of the Fund

15. Control Persons and Principal Control Persons and Principal
Holders of Securities............... Shareholders of the Fund

16. Investment Advisory and Other Investment Advisory Agreement;
Services............................ Subadvisory Agreement;
Administrative Services
Agreement; Custodian;
Independent Auditors

17. Brokerage Allocation................ Brokerage Allocation and Trading
Polices

18. Capital Stock and Other Securities.. Description of Shares

19. Purchase, Redemption and Pricing of Purchase and Redemption of
Securities Being Offered............ Shares;
Net Asset Value

20. Tax Status.......................... Tax Matters

21. Underwriters........................ Not Applicable

22. Calculation of Performance Data..... Performance Information

23. Financial Statements................ Financial Statements
</TABLE>

<PAGE>

Part C
------

Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C of the Registration Statement.

<PAGE>

AETNA VARIABLE ENCORE FUND

151 Farmington Avenue

Hartford, Connecticut 06156-8972

1-800-525-4225

Prospectus dated: May 1, 1997

Aetna Variable Encore Fund (Fund) is a diversified, open-end management
investment company whose shares are currently sold to variable annuity or
variable life insurance separate accounts to fund variable annuity contracts (VA
Contracts) and variable life insurance policies (VLI Policies) issued by Aetna
Life Insurance and Annuity Company (Aetna) and its affiliates.

The Fund seeks to provide high current return, consistent with preservation
of capital and liquidity, through investment in high-quality money market
instruments. An investment in the Fund is neither insured nor guaranteed by the
U.S. Government.

This Prospectus sets forth concisely information about the Fund that you
should know before investing. Additional information about the Fund is contained
in a Statement of Additional Information (Statement) dated May 1, 1997, which
has been filed with the Securities and Exchange Commission (Commission) and is
incorporated by reference. You can obtain a Statement, without charge, by
writing to the Fund at the address listed above or by calling the Fund at
1-800-525-4225. Additional information filed with the Commission can be obtained
by contacting the Commission at its Web Site (http://www.sec.gov).

This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the securities of the Fund in any jurisdiction in which such
sale, offer to sell, or solicitation may not be lawfully made.

LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Please read this Prospectus and retain for future reference.

<PAGE>

TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS ..................... 3
INVESTMENT OBJECTIVE ..................... 4
INVESTMENT POLICIES AND RESTRICTIONS ...... 4
Investment Policies ..................... 4
Industry Concentration .................. 4
Illiquid and Restricted Securities ...... 4
Foreign Securities ........................ 5
Repurchase Agreements ..................... 5
Securities Lending ........................ 5
Borrowing ................................. 5
MANAGEMENT OF THE FUND ..................... 5
Trustees ................................. 5
Investment Adviser ........................ 5
Subadviser .............................. 5
Portfolio Management ..................... 5
Expenses and Fund Administration ......... 6
GENERAL INFORMATION ........................ 6
Declaration of Trust ..................... 6
Capital Stock ........................... 6
Shareholder Meetings ..................... 6
Voting Rights ........................... 6
Mixed Funding ........................... 6
TAX MATTERS .............................. 6
The Fund ................................. 6
Fund Distributions ........................ 6
PURCHASE AND REDEMPTION OF SHARES ......... 7
NET ASSET VALUE ........................... 7
GLOSSARY ................................. 8

2 Aetna Variable Encore Fund

<PAGE>

FINANCIAL HIGHLIGHTS

The selected data presented below for, and as of the end of, each of the years
in the ten-year period ended December 31, 1996 are derived from the financial
statements of the Fund, which statements have been audited by KPMG Peat Marwick
LLP, independent auditors. The financial statements as of December 31, 1996, and
for each of the years in the two-year period then ended, and the independent
auditors' report thereon, are included in the Fund's annual report dated
December 31, 1996 which is incorporated by reference into the Statement.

<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value per share,
beginning of year ............... $13.298 $12.544 $12.535 $12.557
-------- ------- ------- ------
Income from Investment
Operations
Net investment income ......... .697 .755 .526 .397
Net realized and unrealized gain
(loss) on investments ......... (.001) .009 (.022) .001
-------- ------- ------- ------
Total from Investment
Operations ..................... .696 .764 .504 .398
-------- ------- ------- ------
Less Distributions
Dividends from net investment
income ........................ (.800) (.010) (.495) (.420)
Dividends from realized gains on
investments ..................... -- -- -- --
------- ------- ------- -------
Net asset value per share, end of
year ........................... $13.194 $13.298 $12.544 $12.535
======= ======= ======= =======
Total Return* .................. 5.37% 6.05% 4.09% 3.19%
Net assets, end of year (000's) $613,505 $514,037 $483,039 $380,249
Ratio of total expenses to average
net assets ..................... .34% .30% .32% .31%
Ratio of net investment income to
average net assets ............... 5.24% 5.82% 4.16% 3.14%

<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1992 1991 1990 1989 1988 1987
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of year ............... $12.628 $12.685 $12.574 $12.639 $12.602 $13.557
------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net investment income ......... .502 .795 1.057 1.179 .947 .882
Net realized and unrealized gain
(loss) on investments ......... (.042) .033 .004 .006 (.003) (.011)
------- ------- ------- ------- ------- -------
Total from Investment
Operations ..................... .460 .828 1.061 1.185 .944 .871
------- ------- ------- ------- ------- -------
Less Distributions
Dividends from net investment
income ........................ (.531) (.885) (.950) (1.248) (.907) (1.826)
Dividends from realized gains on
investments ..................... -- -- -- (.002) -- --
------- ------- ------- ------- ------- -------
Net asset value per share, end of
year ........................... $12.557 $12.628 $12.685 $12.574 $12.639 $12.602
======= ======= ======= ======= ======= =======
Total Return* .................. 3.67% 6.53% 8.44% 9.39% 7.50% 6.81%
Net assets, end of year (000's) $461,991 $502,510 $553,240 $416,802 $391,234 $340,894
Ratio of total expenses to average
net assets ..................... .37% .36% .33% .36% .47% .31%
Ratio of net investment income to
average net assets ............... 3.96% 6.09% 8.13% 9.00% 7.28% 6.70%
</TABLE>

Per share data calculated using weighted average number of shares outstanding
throughout the year.

*The performance data reflects deduction of an investment advisory fee at an
annual rate of 0.25% of the Fund's average daily net assets and deductions
for Fund administrative services and other expenses at cost prior to May 1,
1996, and at an annual rate of 0.10% of average daily net assets thereafter.
Performance data above is for the Fund and not for the separate accounts
investing in the Fund. Therefore, the performance does not reflect insurance
charges for mortality and expense risks, contract maintenance charges, deferred
sales charges or other charges relating to the separate account using the Fund
for VA Contracts or VLI policies. Inclusion of these expenses would reduce
the total return figures.

Additional information about the performance of the Fund is contained in the
Fund's Annual Report dated December 31, 1996. The Annual Report may be obtained,
without charge, by writing to the Fund at the address listed on the cover of
this Prospectus or by calling 1-800-525-4225.

Aetna Variable Encore Fund 3

<PAGE>

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments. The Fund's investment objective is
fundamental and may not be changed without the vote of a majority of its
outstanding voting securities as defined by the Investment Company Act of 1940
(1940 Act). There can be no assurance that the Fund will meet its investment
objective.

INVESTMENT POLICIES AND RESTRICTIONS

Investment Policies The Fund will invest primarily in (a) money market
instruments that have a maturity at the time of purchase, as defined under
federal securities laws, of 397 days or less (762 days or less for U.S.
Government securities) and (b) debt securities with a longer maturity, if the
Fund has the absolute right to sell such securities back to the issuer for at
least the face amount of the debt obligation within 397 days after the date of
purchase. The Fund invests in U.S. Treasury bills, notes and bonds; obligations
of agencies and instrumentalities of the U.S. Government; obligations of
domestic banks and U.S. dollar denominated obligations of foreign banks, finance
company commercial paper, corporate commercial paper (including variable-rate
instruments); documented discount notes of banks, domestic banker's acceptances
eligible for discount at the Federal Reserve, Yankee certificates of deposit,
Yankee commercial paper, Eurodollar securities, repurchase agreements, corporate
bonds and notes and other debt instruments, and may purchase securities on a
when-issued or delayed-delivery basis. The Fund will not invest more than 25% of
its total assets in securities or obligations of foreign issuers. All securities
and obligations purchased by the Fund will be U.S. dollar denominated. The Fund
may engage in transactions on a when-issued or forward commitment basis and may
enter into forward currency contracts; however, the Fund does not intend to
invest more than 5% of its total assets in such securities. The average maturity
of the portfolio will depend on the investment adviser's appraisal of money
market conditions; however, it will not exceed 90 days. All earned income and
realized capital gains will be reinvested.

The Fund will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest credit
rating by any two rating agencies (or one, if only one agency has rated the
security). High-quality securities may also include unrated securities if the
investment adviser or subadviser determines the security to be of comparable
quality. The remainder of the Fund's assets will be invested in securities rated
within the two highest rating categories by any two rating agencies (or one, if
only one rating agency has rated the security) and unrated securities if the
Adviser determines the security to be of comparable quality. With respect to
these securities, the Fund may not invest more than 1% of the market value of
its total assets or $1 million, whichever is greater, in the securities or
obligations of any one issuer. The Fund will use nationally recognized rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service,
Inc. when determining security credit ratings. All investments will be
determined by the Adviser to present minimal credit risks.

Industry Concentration The Fund will not concentrate its investments in any one
industry, and, therefore the Fund will not invest 25% or more of its total
assets in securities issued by companies principally engaged in any one
industry. This limitation will not, however, apply to securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities;
securities invested in, or repurchase agreements for, U.S. Government
securities; and certificates of deposit, bankers' acceptances, or securities of
banks and bank holding companies. For purposes of this restriction, finance
companies will be classified as separate industries according to the end users
of their services, such as automobile finance, computer finance and consumer
finance. Also, the Fund will not hold securities constituting more than 5% of
its total assets in the securities of any one issuer or hold more than 10% of
the outstanding voting securities of any one issuer. This latter restriction
applies only to 75% of the Fund's total assets and does not include securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities.
The Fund does not invest in the securities of companies determined by the
Adviser to be primarily involved in the production or distribution of tobacco
products.

Illiquid and Restricted Securities The Fund may invest up to 10% of its total
assets in illiquid securities. Illiquid securities are securities that are not
readily marketable or cannot be disposed of promptly within seven days in the
ordinary course of business without taking a materially reduced price. In
addition, the Fund may invest in securities that are subject to legal or
contractual restrictions on resale, including securities purchased under Rule
144A and Section 4(2) of the Securities Act of 1933. The Board of Trustees of
the Fund (Trustees) has established a policy concerning investments in
restricted and illiquid securities.

4 Aetna Variable Encore Fund

<PAGE>

Foreign Securities The Fund may invest up to 25% of its total assets in U.S.
dollar denominated securities or obligations of foreign issuers. Investments in
securities of foreign issuers involve risks not present in domestic markets.
Such risks include: currency fluctuations; less liquidity; price or income
volatility; less government supervision and regulation of stock exchanges where
the securities may be traded, brokers and listed companies; possible difficulty
in obtaining and enforcing judgments against foreign entities; adverse foreign
political and economic developments; different accounting procedures and
auditing standards; the possible imposition of withholding taxes on interest
income payable on securities; the possible seizure or nationalization of foreign
assets; the possible establishment of exchange controls or other foreign laws or
restrictions which might adversely affect the payment and transferability of
principal and interest on securities; higher transaction costs; possible
settlement delays and less publicly available information about foreign issuers.

Repurchase Agreements The Fund may enter into repurchase agreements with banks
and broker dealers. Under a repurchase agreement, the Fund may acquire a debt
instrument for a relatively short period subject to an obligation by the seller
to repurchase and by the Fund to resell the instrument at a fixed price and
time. Assets may be invested in repurchase agreements with domestic banks and
broker-dealers. Such agreements, although fully collateralized, involve the risk
that the seller of the securities may fail to repurchase them. In that event,
the Fund may incur costs in liquidating the securities (or other collateral for
the agreement) or a loss if the collateral declines in value. If the default on
the part of the seller is due to insolvency and the seller initiates bankruptcy
proceedings, the ability of the Fund to liquidate the collateral may be delayed
or limited.

Securities Lending The Fund may lend portfolio securities; however, the value of
the loaned securities (together with all other assets that are loaned, including
those subject to repurchase agreements) may not exceed one-third of the Fund's
total assets. The Fund will not lend portfolio securities to affiliates. Though
fully collateralized, lending portfolio securities involves certain risks,
including the possibility that the borrower may become insolvent or default on
the loan. In the event of a disparity between the value of the loaned security
and the collateral, there is the additional risk that the borrower may fail to
return the securities or provide additional collateral. A loan may be terminated
at any time by the borrower or lender upon proper notice.

Borrowing The Fund may borrow up to 5% of the value of its total assets for
temporary or emergency purposes. The Fund does not intend to borrow for
leveraging purposes. It has the authority to do so, but only if, after the
borrowing, the value of the Fund's net assets, including proceeds from the
borrowings, is equal to at least 300% of all outstanding borrowings. Leveraging
can increase the volatility of the Fund since it exaggerates the effects of
changes in the value of the securities purchased with the borrowed funds.

The Fund is subject to additional investment restrictions described in the
Statement.

MANAGEMENT OF THE FUND

Trustees The operations of the Fund are managed under the direction of the
Trustees. The Trustees set broad policies for the Fund. Information about the
Trustees is found in the Statement.

Investment Adviser Aetna serves as the investment adviser for the Fund and
Aeltus Investment Management, Inc. (Aeltus) serves as the subadviser. Aetna is a
Connecticut insurance corporation with its principal offices located at 151
Farmington Avenue, Hartford, Connecticut 06156. Aetna and Aeltus (collectively,
the "Adviser") are both indirect, wholly-owned subsidiaries of Aetna Retirement
Services, Inc., which is in turn an indirect wholly-owned subsidiary of Aetna
Inc. Aetna is registered with the Commission as an investment adviser. Aetna
receives a management fee at an annual rate of 0.25% of the average daily net
assets of the Fund, payable monthly.

Subadviser The Fund and Aetna have engaged Aeltus as subadviser of the Fund.
Aeltus is a Connecticut corporation with its principal offices located at 242
Trumbull Street, Hartford, Connecticut 06156-1205. Aeltus is registered as an
investment adviser with the Commission.

Under the Subadvisory Agreement, Aeltus is responsible for managing the assets
of the Fund in accordance with the Fund's investment objective and policies
subject to the supervision of Aetna, the Fund and the Trustees. Aeltus
determines what securities and other instruments are purchased and sold by the
Fund and handles certain related accounting and administrative functions,
including determining the Fund's net asset value on a daily basis and preparing
and providing such reports, data and information as Aetna or the Trustees
request from time to time. Aeltus receives a fee at an annual rate of up to
0.15% of the average daily net assets of the Fund, payable monthly.

Aetna has overall responsibility for monitoring the investment program
maintained by the Subadviser for compliance with applicable laws and regulations
and the Fund's investment objective and policies.

Portfolio Management Jeanne Wong-Boehm, Managing Director, Aeltus, has been the
portfolio manager for the Fund for over ten years. Ms. Wong-Boehm joined the
Aetna organization in 1983 as a fixed income portfolio analyst. In 1989 she was
also assigned primary responsibility for the money market operations.

Aetna Variable Encore Fund 5

<PAGE>

Expenses and Fund Administration Under an Administrative Services Agreement with
the Fund Aetna provides all administrative services necessary for the Fund's
operations and is responsible for the supervision of the Fund's other service
providers. Aetna is also responsible for all ordinary recurring direct costs of
the Fund such as custodian fees, directors fees, transfer agency costs and
accounting expenses. For the services provided under the Administrative Services
Agreement, Aetna receives an annual fee, payable monthly, at a rate of 0.10% of
the average daily net assets of the Fund.

GENERAL INFORMATION

Declaration of Trust The Fund was organized as a "Massachusetts business trust"
under the laws of Massachusetts on January 25, 1984. It began operations on May
1, 1984 upon succeeding to the assets of Aetna Variable Encore Fund, Inc., a
corporation that was formed in 1974. Massachusetts law provides that
shareholders of the Fund can, under certain circumstances, be held personally
liable for the obligations of the Fund. The Fund has been structured, and will
be operated in such a way, so as to ensure as much as possible, that
shareholders will not be liable for obligations of the Fund. The Declaration of
Trust (Declaration) contains an express disclaimer of shareholder liability for
acts or obligations of the Fund under Massachusetts law, and requires that
notification of this disclaimer be given in each agreement, obligation or
instrument entered into by the Fund or the Trustees. A more complete discussion
of potential liability of shareholders of the Fund under Massachusetts law is
contained in the Statement under "Description of Shares -- Shareholder and
Trustee Liability."

Capital Stock The Declaration permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest in the Fund. All shares are
nonassessable, other than as disclosed above. There are no preemptive rights.

As of March 31, 1997, there were 50,177,563 shares of the Fund outstanding,
all of which were owned by Aetna and its affiliates and held in separate
accounts to fund obligations under VA Contracts and VLI Policies.

Shareholder Meetings The Fund is not required to hold annual shareholder
meetings. The Declaration provides for meetings of shareholders to elect
Trustees at such time as may be determined by the Trustees or as required by the
1940 Act. If requested by the holders of at least 10% of the Fund's outstanding
shares, the Fund will hold a shareholder meeting for the purpose of voting on
the removal of one or more Trustees and will assist with communications
concerning that shareholder meeting.

Voting Rights Shareholders are entitled to one vote for each full share held and
fractional votes for fractional shares held on matters submitted to the
shareholders of the Fund. Voting rights are not cumulative. Persons who select
the Fund for investment through their VA Contract or VLI Policy are not the
shareholders of the Fund, but may have the right to direct the voting of Fund
shares at shareholder meetings if required by law. Voting rights are discussed
in the prospectus for the applicable VA Contract or VLI Policy.

Mixed Funding Because the Fund is sold to fund variable annuity contracts and
variable life insurance policies issued by Aetna, certain conflicts of interest
could arise. If a conflict of interest were to occur, one of the separate
accounts invested in the Fund might withdraw its investment in the Fund, which
might force the Fund to sell its portfolio of securities at disadvantageous
prices, causing its per share value to decrease. The Trustees have agreed to
monitor events in order to identify any material irreconcilable conflicts which
might arise and to determine what action, if any, should be taken to address
such conflict.

TAX MATTERS

The following discussion of federal income tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. The following discussion is for
general information only; a more detailed discussion of federal income tax
considerations is contained in the Statement. Holders of VA Contracts or VLI
Policies should consult the prospectuses of their respective contracts or
policies for information concerning federal income tax consequences to them.

The Fund The Fund intends to continue to qualify as a regulated investment
company by satisfying the requirements under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") concerning: (1) the
diversification of assets; (2) the distribution of income; and (3) the source of
income. It is the policy of the Fund to distribute all of its investment income
(net of expenses) and any capital gains (net of capital losses) to the separate
accounts which hold the shares of the Fund in accordance with the timing
requirements imposed by the Code. In addition, the Fund intends to comply with
the variable asset diversification requirements under Section 817(h) of the
Code, which are described more fully in the Statement.

Fund Distributions Distributions by the Fund are taxable, if at all, to the
insurance company separate accounts, and not to VA Contract or VLI Policy
holders.

6 Aetna Variable Encore Fund

<PAGE>

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund are purchased and redeemed at their net asset value next
determined after receipt of a purchase or redemption order in acceptable form.
Orders for the purchase or redemption of shares of the Fund that are received by
the insurance company before the close of regular trading on the New York Stock
Exchange (normally 4 p.m. eastern time) are effected at the net asset value per
share determined that day, as described below (see Net Asset Value). The
insurance company shall be the designee of the Fund for receipt of purchase and
redemption orders. Therefore, receipt of an order by the insurance company
constitutes receipt by the Fund; provided that the Fund receives notice of the
order by 9:30 a.m. the next day on which the New York Stock Exchange is open
for trading. No sales charge or redemption charge is made.

The Fund may suspend redemptions or postpone payments when the New York Stock
Exchange is closed or when trading is restricted for any reason (other than
weekends or holidays) or under emergency circumstances as determined by the
Commission.

NET ASSET VALUE

The net asset value per share (NAV) of the Fund is determined as of the earlier
of 15 minutes after the close of the New York Stock Exchange or 4:15 p.m.
eastern time, on each day that the New York Stock Exchange is open for trading.
The NAV is computed by dividing the total value of the Fund's securities, plus
any cash or other assets less all liabilities (including accrued expenses), by
the number of shares outstanding.

Portfolio securities are valued primarily by independent pricing services, based
on market quotations. Short-term debt instruments maturing in less than 60 days
are valued at amortized cost. Securities for which market quotations are not
readily available are valued at their fair value in such manner as may be
determined under the authority of the Trustees.

Aetna Variable Encore Fund 7

<PAGE>

GLOSSARY

This glossary describes some of the securities in which the Fund may invest in
pursuing its investment objective.

U.S. Government Securities

U.S. Government Direct Obligations

Securities issued by the U.S. Government and its agencies. Direct Obligations of
the U.S. Government are:

Treasury Bills -- issued with short maturities (one year or less). They are
issued in bearer form and are priced at a discount to face value. The income for
investors is the difference between the purchase price and the face value.

Treasury Notes -- intermediate-term securities with maturities of between one to
ten years. Income to investors is paid in semi-annual interest payments.

Treasury Bonds -- long-term debt instruments with maturities from ten years to
up to thirty years. Income is paid to investors on a semi-annual basis.

U.S. Government Agencies Securities

U.S. Government Agencies have been established as instrumentalities of the
United States Government to issue debt securities to finance activities for the
U.S. Government. These agencies include among others Banks for Cooperatives,
Federal Land Banks, Federal Intermediate Credit Banks, Federal Home Loan Banks,
Federal National Mortgage Association ("FNMA" or "Fannie Mae"), Government
National Mortgage Association ("GNMA" or "Ginnie Mae"), Export-Import Bank and
the Tennessee Valley Authority. Issues of these agencies, while not direct
obligations of the United States Government are backed by the full faith and
credit of the United States, or are guaranteed by the Treasury, or supported by
the issuing agencies' right to borrow from the Treasury.

Not all agencies are backed by the full faith and credit of the United States;
for example the FNMA may borrow money from the U.S. Treasury only under certain
circumstances. There is no guarantee that the government will support these
types of securities and they therefore involve more risk than direct government
obligations.

Banker's Acceptance

A banker's acceptance is a time draft drawn on and accepted by a bank. It is
generally used by corporations to finance payment for traded goods. When the
draft is accepted by a bank, the bank unconditionally guarantees to pay the face
value of the instrument on its maturity date. An investor can purchase a
banker's acceptance in the secondary market at the going rate of discount for a
specific maturity. The maturity of such instruments is generally six months or
less.

Certificates of Deposit

Certificates of deposit (CDs) are issued by banks and earn a specified rate of
return over a definite period of time. CDs are usually negotiable and traded
among investors such as mutual funds and banks. Eurodollar CDs are U.S.
dollar-denominated deposits in banks outside the United States. The bank may be
a foreign bank or a foreign branch of a United States bank. Certain Eurodollar
deposits are not FDIC insured and may be subject to future political and
economic developments and governmental restrictions. Yankee CDs are United
States dollar-denominated deposits issued in the United States by foreign banks.

Commercial Paper

Commercial paper is an unsecured short-term debt instrument issued by a company
or bank with a maturity ranging from two to 270 days.

Repurchase Agreements

A repurchase agreement or "repo" is an agreement between a seller and buyer,
usually of U.S. Government securities, whereby one seller agrees to sell and
subsequently repurchase securities at a fixed price usually at a future
specified date. Under a reverse repurchase agreement, the Fund would in effect
buy securities from another entity, which entity agrees to repurchase the
securities at a future specified date. The repurchase price under any type of
repurchase agreement reflects an agreed-upon interest rate for the period of
purchase, which tends to reflect current interest rates in the market rather
than original issue rate on the security. The primary attraction of repurchase
agreements is the flexibility of maturities.

8 Aetna Variable Encore Fund

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Statement of Additional Information dated: May 1, 1997

AETNA VARIABLE

ENCORE FUND

151 Farmington Avenue

Hartford, Connecticut 06156

This Statement of Additional Information (Statement) is not a prospectus and
should be read in conjunction with the current prospectus for Aetna Variable
Encore Fund dated May 1, 1997.

A free prospectus is available from the local Aetna office, by writing to Aetna
Variable Encore Fund at the address listed above or by calling 1-800-525-4225.

Read the prospectus before you invest.
TABLE OF CONTENTS

General Information and History ................................. 2
Investment Objective and Policies of the Fund ..................... 2
Description of Various Securities and Investment Techniques ...... 4
Trustees and Officers of the Fund ................................. 5
Control Persons and Principal Shareholders of the Fund ............ 8
Investment Advisory Agreement .................................... 8
Subadvisory Agreement ............................................. 9
Administrative Services Agreement ................................. 9
License Agreement ................................................ 9
Brokerage Allocation and Trading Policies ........................ 10
Description of Shares ............................................. 11
Tax Matters ...................................................... 12
Purchase and Redemption of Shares ................................. 15
Principal Underwriter ............................................. 16
Net Asset Value ................................................... 16
Performance Information .......................................... 16
Custodian ......................................................... 16
Independent Auditors ............................................. 16
Financial Statements ............................................. 17

<PAGE>

GENERAL INFORMATION AND HISTORY

Aetna Variable Encore Fund (Fund) is an open-end diversified management
investment company which sells its shares of beneficial interest to variable
annuity or variable life insurance separate accounts to fund variable annuity
contracts (VA Contracts) or variable life insurance policies (VLI Policies)
issued by Aetna Life Insurance and Annuity Company (Aetna or Company) and its
affiliates.

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND

The investment objective of the Fund is to provide high current return,
consistent with preservation of capital and liquidity, through investment in
high-quality money market instruments.

The Fund will operate under the following restrictions, which together with its
investment objective, are matters of fundamental policy and cannot be changed
without the approval of a majority of the outstanding voting securities of the
Fund as defined by the Investment Company Act of 1940 (1940 Act). This means the
lesser of: (i) 67% of the shares of the Fund present or represented at a
shareholders' meeting if the holders of more than 50% of the shares then
outstanding are present or represented; or (ii) more than 50% of the outstanding
voting securities of the Fund.

In seeking to accomplish its investment objective, the Fund will not:

(1) issue any senior security as defined in the 1940 Act, except that (a) the
Fund may enter into commitments to purchase securities in accordance with
the Fund's investment program, including reverse repurchase agreements,
delayed delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) the Fund may engage in transactions that
may result in the issuance of a senior security to the extent permitted
under applicable regulations, interpretations of the 1940 Act or an
exemptive order, and (c) subject to fundamental restrictions, the Fund may
borrow money as authorized by the 1940 Act;

(2) with respect to 75% of the value of the Fund's total assets, hold more than
5% of the value of its total assets in the securities of any one issuer or
hold more than 10% of the outstanding voting securities of any one issuer.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities are excluded from these restrictions;

(3) concentrate its investments in any one industry except that the Fund may
invest up to 25% of its total assets in securities issued by companies
principally engaged in any one industry. For purposes of this restriction,
finance companies will be classified as separate industries according to
the end users of their services, such as automobile finance, computer
finance and consumer finance. This limitation will not, however, apply to
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities; securities invested in, or repurchase agreements for,
U.S. Government securities; and certificates of deposit, bankers'
acceptances, or securities of banks and bank holding companies;

(4) make loans, except that, to the extent appropriate under its investment
program, the Fund may (a) purchase bonds, debentures or other debt
securities, including short-term obligations, (b) enter into repurchase
transactions and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Fund's total
assets;

(5) invest in commodity contracts, except that the Fund may, to the extent
appropriate under its investment program, purchase securities of companies
engaged in such activities, may engage in transactions on a when-issued or
forward commitment basis, and may enter into forward currency contracts;

(6) borrow money, except that (a) the Fund may enter into commitments to
purchase securities in accordance with the Fund's investment program,
including delayed-delivery and when-issued securities and reverse
repurchase agreements; and (b) for temporary, emergency purposes, the Fund
may borrow money in amounts not exceeding 5% of the value of its total
assets at the time the loan is made;

2 Aetna Variable Encore Fund

<PAGE>

(7) purchase real estate, interests in real estate or real estate limited
partnership interests except that, to the extent appropriate under its
investment program, the Fund may invest in securities secured by real
estate or interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests therein; or

(8) act as an underwriter of securities except to the extent that, in
connection with the disposition of portfolio securities by the Fund, the
Fund may be deemed to be an underwriter under the provisions of the
Securities Act of 1933 (1933 Act).

(Note that as a money market fund, the Fund's investment program does not
currently allow investment in futures contracts.)

The Fund has also adopted certain other investment restrictions that may be
changed by the Fund's Trustees and without shareholder vote. Under such
restrictions, the Fund will not:

(1) make short sales of securities, other than short sales "against the box,"
or purchase securities on margin except for short-term credits necessary
for clearance of portfolio transactions, provided that this restriction
will not be applied to limit the use of options, futures contracts and
related options, in the manner otherwise permitted by the investment
restrictions, policies and investment program of the Fund;

(2) invest more than 10% of its total assets in illiquid securities. Illiquid
securities are securities that are not readily marketable or cannot be
disposed of promptly within seven days and in the usual course of business
without taking a materially reduced price. Such securities include, but are
not limited to, time deposits and repurchase agreements with maturities
longer than seven days. Securities that may be resold under Rule 144A or
securities offered pursuant to Section 4(2) of the 1933 Act, as amended,
shall not be deemed illiquid solely by reason of being unregistered. The
Investment Adviser shall determine whether a particular security is deemed
to be liquid based on the trading markets for the specific security and
other factors;

(3) purchase the securities of any other investment company, except as
permitted under the 1940 Act or by Order of the Securities and Exchange
Commission (Commission);

(4) invest in companies for the purpose of exercising control or management; or

(5) invest more than 25% of its total assets in securities or obligations of
foreign issuers, including marketable securities of, or guaranteed by,
foreign governments (or any instrumentality or subdivision thereof). The
Fund will invest in securities or obligations of foreign banks only if such
banks have a minimum of $5 billion in assets and a primary capital ratio of
at least 4.25%. The Fund may only purchase foreign securities or
obligations that are U.S. dollar denominated.

Where the Fund's investment objective or policies restricts it to a specified
percentage of its total assets in any type of instrument, that percentage is
measured at the time of purchase. There will be no violation of any investment
policy or restriction if that restriction is complied with at the time of
purchase notwithstanding a later change in the market value of an investment, in
net or total assets, in the securities rating of the investment or any other
change.

The Fund will invest at least 95% of its total assets in high-quality
securities. High-quality securities are those receiving the highest credit
rating by any two nationally recognized statistical rating organizations (or
one, if only one rating organization has rated the security) and the conditions
of Rule 2a-7 under the 1940 Act are met. High-quality securities may also
include unrated securities if the investment adviser determines the security to
be of comparable quality.

The remainder of the Fund's assets will be invested in securities rated within
the two highest rating categories by any two nationally recognized statistical
rating organizations (or one, if only one rating organization has rated the
security) and unrated securities if the investment adviser determines the
security to be of comparable quality. With respect to this group of securities,
the Fund may not, however, invest more than 1% of the market value of its total
assets or $1 million, whichever is greater, in the securities or obligations of
a single issuer.

Aetna Variable Encore Fund 3

<PAGE>

DESCRIPTION OF VARIOUS SECURITIES AND INVESTMENT TECHNIQUES

The following information supplements and should be read in conjunction with the
section of the prospectus entitled "Investment Policies and Restrictions."

Repurchase Agreements

The Fund may enter into repurchase agreements with domestic banks and
broker-dealers meeting certain size and creditworthiness standards established
by the Fund's Board of Trustees. A repurchase agreement allows the Fund to
determine the yield during the Fund's holding period. This results in a fixed
rate of return insulated from market fluctuations during such period. Such
underlying debt instruments serving as collateral will meet the quality
standards of the Fund. The market value of the underlying debt instruments will,
at all times, be equal to the dollar amount invested, even though the maturity
of the underlying instruments may exceed the 397-day maturity limitation (762
days for U.S. Government securities) of the Fund. Repurchase agreements,
although fully collateralized, involve the risk that the seller of the
securities may fail to repurchase them from the Fund. In that event, the Fund
may incur (a) disposition costs in connection with liquidating the collateral,
or (b) a loss if the collateral declines in value. Also, if the default on the
part of the seller is due to insolvency and the seller initiates bankruptcy
proceedings, the Fund's ability to liquidate the collateral may be delayed or
limited. Under the 1940 Act, repurchase agreements are considered loans by the
Fund. Repurchase agreements maturing in more than seven days will not exceed 10
percent of the total assets of the Fund.

The Company will not make loans, enter into repurchase agreements or lend
portfolio securities unless it receives collateral that is at least equal to the
value of the loan, including accrued interest.

Reverse Repurchase Agreements

The Fund may enter into "reverse repurchase agreements" in which the Fund, as
seller of the securities, agrees to repurchase them at an agreed upon time and
price. When engaging in reverse repurchase agreements with banks or
broker-dealers, the Fund will receive cash and will deposit collateral in the
form of cash or cash equivalents in a segregated account maintained by Mellon
Bank, N.A. Such collateral will be maintained at all times in an amount equal to
at least 100% of the amount due to the bank or broker-
dealer with which the Fund entered into the reverse repurchase agreement.

When-Issued or Delayed-Delivery Securities

During any period that the Fund has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, the Fund will maintain
with its custodian bank a segregated account consisting of cash, U.S. Government
securities or other high-quality debt obligations. To the extent that the market
value of securities held in this segregated account falls below the amount that
the Fund will be required to pay on settlement, additional assets may be
required to be added to the segregated account. Such segregated accounts could
affect the Fund's liquidity and ability to manage its portfolio. When the Fund
engages in when-issued or delayed-delivery transactions, it is effectively
relying on the seller of such securities to consummate the trade; failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to invest funds held in the segregated account more advantageously.

The Fund will not pay for securities purchased on a when-issued or
delayed-delivery basis, or start earning interest on such securities, until the
securities are actually received. However, any security so purchased will be
recorded as an asset of the Fund at the time the commitment is made. Because the
market value of securities purchased on a when-issued or delayed-delivery basis
may increase or decrease prior to settlement as a result of changes in interest
rates or other factors, such securities will be subject to changes in market
value prior to settlement and a loss may be incurred if the value of the
security to be purchased declines prior to settlement.

Maturity Policies

The average dollar-weighted maturity of securities in the Fund's portfolio will
not exceed ninety days. In addition, no security in the Fund's portfolio will
have a maturity of greater than thirteen months (397 calendar days), or, in the
case of United States Government securities, no greater than twenty-five months
(762 calendar days).

4 Aetna Variable Encore Fund

<PAGE>

TRUSTEES AND OFFICERS OF THE FUND

The investments and administration of the Fund are under the direction of the
Board of Trustees (Trustees). The Trustees and executive officers of the Fund
and their principal occupations for the past five years are listed below. Those
trustees who are "interested persons," as defined in the 1940 Act, are indicated
by an asterisk (*). All Trustees and officers hold similar positions with other
investment companies in the same Fund Complex managed by the Investment Adviser.
Fund Complex presently consists of: Aetna Series Fund, Inc., Aetna Variable
Fund, Aetna Income Shares, Aetna Variable Encore Fund, Aetna Investment Advisers
Fund, Inc., Aetna GET Fund (Series B and Series C), Aetna Generation Portfolios,
Inc., and Aetna Variable Portfolios, Inc.

<TABLE>
<CAPTION>
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with Registrant Principal Underwriters of the Registrant)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Shaun P. Mathews* Trustee and Vice President/Senior Vice President, Aetna
151 Farmington Avenue President Life Insurance and Annuity Company, March 1991 to present
Hartford, Connecticut and Vice President, Aetna Life Insurance Company, 1991
Age 41 to present. Director and President, Aetna Investment Services,
Inc.; and Director and Senior Vice President, Aetna Insurance
Company of America, March 1991 to present.
-------------------------------------------------------------------------------------------------
Wayne F. Baltzer Vice President Assistant Vice President, Aetna Life Insurance and
151 Farmington Avenue Annuity Company, May 1991 to present; Vice President,
Hartford, Connecticut Aetna Investment Services, Inc. July 1993 to present.
Age 53
-------------------------------------------------------------------------------------------------
Martin T. Conroy Vice President Assistant Treasurer, Aetna Life Insurance and
151 Farmington Avenue Annuity Company, October 1991 to present.
Hartford, Connecticut
Age 57
-------------------------------------------------------------------------------------------------
J. Scott Fox Vice President and Director and Senior Vice President, Aetna Life
151 Farmington Avenue Treasurer Insurance and Annuity Company, March 1997 to
Hartford, Connecticut present; Director, Managing Director, Chief
Age 42 Operating Officer, Chief Financial Officer and
Treasurer, Aeltus Investment Management, Inc.
(Aeltus), April 1994 to present; Managing Director
and Treasurer, Equitable Capital Management Corp.,
March 1987 to September 1993. Director and Chief
Financial Officer, Aeltus Capital, Inc. and Aeltus
Trust Company, Inc.; Director, President and Chief
Executive Officer, Aetna Investment Management,
(Bermuda) Holding, Ltd.
-------------------------------------------------------------------------------------------------
Susan E. Bryant Secretary Counsel, Aetna Inc. (formerly Aetna Life and
151 Farmington Avenue Casualty Company) March 1993 to present; General
Hartford, Connecticut Counsel and Corporate Secretary, First Investors
Age 49 Corporation, April 1991 to March 1993. Secretary,
Aetna Investment Services, Inc. and Vice President
and Senior Counsel, Aetna Financial Services, Inc.
-------------------------------------------------------------------------------------------------
</TABLE>

Aetna Variable Encore Fund 5

<PAGE>

<TABLE>
<CAPTION>
Principal Occupation During Past Five Years
Position(s) Held (and Positions held with Affiliated Persons or
Name, Address and Age with Registrant Principal Underwriters of the Registrant)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Morton Ehrlich Trustee Chairman and Chief Executive Officer, Integrated
1000 Venetian Way Management Corp. (an entrepreneurial company)
Miami, Florida and Universal Research Technologies, 1992 to
Age 62 present; Director and Chairman, Audit Committee,
National Bureau of Economic Research, 1985 to
1992.
-------------------------------------------------------------------------------------------------
Maria T. Fighetti Trustee Manager/Attorney, Health Services, New York City
325 Piermont Road Department of Mental Health, Mental Retardation
Closter, New Jersey and Alcohol Services, 1973 to present.
Age 53
-------------------------------------------------------------------------------------------------
David L. Grove Trustee Private Investor; Economic/Financial Consultant,
5 The Knoll December 1985 to present.
Armonk, New York
Age 78
-------------------------------------------------------------------------------------------------
Timothy A. Holt* Trustee Director, Senior Vice President and Chief Financial
151 Farmington Avenue Officer, Aetna Life Insurance and Annuity Company,
Hartford, Connecticut February 1996 to present; Vice President, Portfolio
Age 43 Management/Investment Group, Aetna Inc. (formerly
Aetna Life and Casualty Company), June 1991 to February
1996. Director and Vice President Aetna Retirement
Holdings, Inc.
-------------------------------------------------------------------------------------------------
Daniel P. Kearney* Trustee Director, President, and Chief Executive Officer,
151 Farmington Avenue Aetna Life Insurance and Annuity Company, December
Hartford, Connecticut 1993 to present; Executive Vice President, Aetna Inc.
Age 57 (formerly Aetna Life and Casualty Company), December
1993 to present; Group Executive, Aetna Inc. (formerly
Aetna Life and Casualty Company), 1991 to 1993;
Director, Aetna Investment Services, Inc., November 1994
to present; Director, Aetna Insurance Company of
America, May 1994 to present.
-------------------------------------------------------------------------------------------------
Sidney Koch Trustee Financial Adviser, self-employed, January 1993 to
455 East 86th Street present; Senior Adviser, Daiwa Securities America,
New York, New York Inc., January 1992 to January 1993; Executive Vice
Age 61 President, Member of Executive Committee, Daiwa
Securities America, Inc., January 1986 to January
1992.
-------------------------------------------------------------------------------------------------
Corine T. Norgaard Trustee, Chair Dean of the Barney School of Business, University
556 Wormwood Hill Audit Committee of Hartford, (West Hartford, CT), August 1996 to
Mansfield Center, and Contract present; Professor, Accounting and Dean of the
Connecticut Committee School of Management, Binghamton University,
Age 59 (Binghamton, NY), August 1993 to August 1996;
Professor, Accounting, University of Connecticut,
(Storrs, Connecticut), September 1969 to June
1993; Director, The Advest Group (holding
company for brokerage firm) through September
1996.
-------------------------------------------------------------------------------------------------
</TABLE>

6 Aetna Variable Encore Fund

<PAGE>

* Interested persons as defined in the Investment Company Act of 1940 (1940
Act).

During the year ended December 31, 1996, members of the Boards of the Funds
within the Aetna Mutual Fund Complex who are also directors, officers or
employees of Aetna Inc. and its affiliates were not entitled to any compensation
from the Funds. Effective November 1, 1995, members of the Boards who are not
affiliated as employees of Aetna or its subsidiaries are entitled to receive an
annual retainer of $30,000 for service on the Boards of the Funds within the
Aetna Mutual Fund Complex. In addition, each such member will receive a fee of
$5,000 per meeting for each regularly scheduled Board meeting, $5,000 for each
Contract Committee meeting which is held on any day on which a regular Board
meeting is not scheduled; and $3,000 for each committee meeting other than for a
Contract Committee meeting on any day on which a regular Board meeting is not
scheduled. A Committee Chairperson fee of $2,000 each will be paid to the
Chairperson of the Contract and Audit Committees. All of the above fees are to
be allocated proportionately to each Fund within the Aetna Mutual Fund Complex
based on the net assets of the Fund as of the date compensation is earned.

As of December 31, 1996, the unaffiliated members of the Board of Trustees were
compensated as follows:

Total
Compensation
from Registrant
Aggregate and Fund
Name of Person, Compensation Complex Paid
Position from Registrant to Trustees
-------- --------------- -----------
Corine Norgaard $4,078.00 $72,950.00
Trustee and
Chairman, Audit and
Contract Committees
Sidney Koch $4,078.00 $72,950.00
Trustee and
Member, Audit and
Contract Committees
Maria T. Fighetti $3,575.00 $63,950.00
Trustee and
Member, Audit and
Contract Committees
Morton Ehrlich $3,575.00 $63,950.00
Trustee and
Member, Audit and
Contract Committees
Richard G. Scheide $3,855.00 $68,950.00
Trustee and
Member, Audit and
Contract Committees

Aetna Variable Encore Fund 7

<PAGE>

Total
Compensation
from Registrant
Aggregate and Fund
Name of Person, Compensation Complex Paid
Position from Registrant to Trustees
-------- --------------- -----------
David L. Grove* $3,855.00 $68,950.00
Trustee and
Member, Audit and
Contract Committees

* Mr. Grove elected to defer all such compensation under an existing deferred
compensation plan.

The Fund has applied for an Order by the Securities and Exchange Commission to
allow the Trustees who are not affiliated with Aetna Inc. or any of its
subsidiaries to defer all or a portion of their compensation in accordance with
the terms of a new Deferred Compensation Plan (Plan). Under the Plan,
compensation deferred by an unaffiliated Trustee is periodically adjusted as
though an equivalent amount had been invested and reinvested in shares of one or
more Series of Aetna Series Fund, Inc. designated by the Trustee. The amount
paid to the unaffiliated Trustee under the Plan will be based upon the
performance of such investments. Deferral of compensation in accordance with the
Plan will have a negligible effect on the assets, liabilities, and net income
per share, and will not obligate the Fund to retain the services of any Trustee
or to pay any particular level of compensation to the Trustee.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF THE FUND

As of March 31, 1997, all of the shares of the Fund were owned by Aetna and its
affiliates and allocated to variable annuity and variable life insurance
separate accounts to fund obligations under VA Contracts and VLI Policies.
Contract holders in these separate accounts are provided the right to direct the
voting of Fund shares at shareholder meetings. The Company and its affiliates
vote the shares they own in these separate accounts in accordance with contract
holders' directions. Undirected shares of the Fund will be voted for each
Account in the same proportion as directed shares.

INVESTMENT ADVISORY AGREEMENT

The Fund has entered into an Investment Advisory Agreement (Advisory Agreement)
appointing Aetna as its Investment Advisor. The Advisory Agreement was adopted
by the Board of Trustees in February, 1996, and approved by the shareholders in
June, 1996. The Advisory Agreement will remain in effect if approved at least
annually by a majority of the Trustees, including a majority of the Trustees who
are not "interested persons" of the Fund, at a meeting, called for that purpose
and held in person. The Advisory Agreement may be terminated without penalty at
any time by the Trustees or by a majority vote of the outstanding voting
securities of the Fund, or it may be terminated on sixty days' written notice by
Aetna. The Advisory Agreement terminates automatically in the event of
assignment.

This Advisory Agreement replaces a prior agreement with Aetna that was approved
by the shareholders of the Fund in April, 1994. Under the Advisory Agreement and
subject to the direction of the Board of Trustees, Aetna has responsibility for
supervising all aspects of the operations of the Fund including the selection,
purchase and sale of securities, the calculation of net asset values and the
preparation of financial and other reports as requested by the Trustees. Under
the agreement, Aetna is given the right to delegate any or all of its
obligations to a subadviser.

The Advisory Agreement provides that Aetna is responsible for payment of all
costs of its personnel, its overhead and of its employees who also serve as
officers or trustees of the Fund. The Fund is responsible for payment of all of
its other costs; however, under the Administrative Services Agreement described

8 Aetna Variable Encore Fund

<PAGE>

below, Aetna has agreed to pay all direct expenses for the Fund except for
broker's commissions and other costs incurred in effecting transactions on
behalf of the Fund.

For its services, Aetna receives a monthly fee at an annual rate of 0.25% of the
average daily net assets of the Fund. For the years ended December 31, 1994,
1995 and 1996, the Fund paid Aetna investment advisory fees of $1,061,521,
$1,242,199 and $1,386,027, respectively.

SUBADVISORY AGREEMENT

The Fund and Aetna entered into a Subadvisory Agreement with Aeltus Investment
Management, Inc. (Aeltus) effective August 1, 1996. The Subadvisory Agreement
will remain in effect if approved at least annually by a majority of the
Trustees, including a majority of the Trustees who are not "interested persons"
of the Fund, at a meeting, called for that purpose and held in person. The
Subadvisory Agreement may be terminated without penalty at any time by the
Trustees or by a majority of the outstanding voting securities of the Fund or
terminated on sixty days' written notice by the Adviser, the Fund or the
Subadviser. The Subadvisory Agreement terminates automatically in the event of
its assignment.

Under the Subadvisory Agreement, Aeltus is responsible for managing the assets
of the Fund in accordance with the Fund's investment objective and policies
subject to the supervision of Aetna and the Trustees and for preparing and
providing accounting and financial information as requested by the Adviser and
the Trustees. The Subadviser pays the salaries, employment benefits and other
related costs of its personnel. For its services, Aetna has agreed to pay the
Subadviser a fee at an annual rate of up to 0.15% of the average daily net
assets of the Fund, payable monthly. This fee is not charged to the Fund but is
paid by Aetna out of its investment advisory fees.

Aetna, as the Investment Adviser retains overall responsibility for monitoring
the investment program maintained by Aeltus for compliance with applicable laws
and regulations and the Fund's investment objective and policies.

ADMINISTRATIVE SERVICES AGREEMENT

The Fund entered into an Administrative Services Agreement with Aetna effective
May 1, 1996 under which Aetna provides all administrative services for the Fund
and pays all ordinary recurring costs of the Fund (except brokerage costs and
other transaction costs). These are costs that the Fund would otherwise be
required to pay under the terms of the Investment Advisory Agreement. As a
result, the Fund's costs and fees are limited to the advisory fee, the
administrative services charge and brokerage and transaction costs. For its
services and as reimbursement for the costs it incurs under the Administrative
Services Agreement, Aetna receives an annual fee, payable monthly at a rate of
0.10% of the average daily net assets of the Fund.

The Administrative Services Agreement will remain in effect if approved annually
by a majority of the Trustees. It may be terminated by either party on sixty
days' written notice. Prior to May 1, 1996, Aetna provided administrative
services under an agreement that allowed for the reimbursement of a
proportionate share of Aetna's overhead in administering the Fund and the Fund
reimbursed Aetna directly for all other costs. The total of the direct costs and
administrative costs reimbursed to Aetna for the years ended December 31, 1994,
1995 and 1996 were $313,575, $277,840 and $447,624, respectively.

LICENSE AGREEMENT

The Fund uses the service mark of Aetna Variable Encore Fund and the name
"Aetna" with the permission of Aetna Inc. granted under a License Agreement. The
continued use is subject to the right of Aetna Inc. to withdraw this permission
in the event Aetna or another subsidiary or affiliated corporation of Aetna Inc.
should not be the investment adviser of the Fund.

Aetna Variable Encore Fund 9

<PAGE>

BROKERAGE ALLOCATION AND TRADING POLICIES

Subject to the direction of the Fund's Board of Trustees, the Company has
responsibility for making the Fund's investment decisions and for effecting the
execution of trades for the Fund's portfolio. Purchases and sales of portfolio
securities will usually be made in principal transactions, which will result in
the payment of no brokerage commission. In such transactions, portfolio
securities will normally be purchased directly from or sold to the issuer or an
underwriter or market-maker for these securities.

The primary criterion used in the allocation of purchase transactions is the
availability of a security which best meets the requirements of the Fund's
portfolio strategy. This determination is based on the safety, liquidity, yield
and maturity of the security in relation to other money market instruments then
available. The primary criterion used in the allocation of sale transactions
will be that of obtaining the best price and execution of such transactions
under the circumstances then prevailing. Aetna and Aeltus currently receive a
variety of brokerage and research services from brokerage firms in return for
the execution by such brokerage firms of trades in securities held by the Fund.
These brokerage and research services include, but are not limited to,
quantitative and qualitative research information and purchase and sale
recommendations regarding securities and industries, analyses and reports
covering a broad range of economic factors and trends, statistical data relating
to the strategy and performance of the Fund and other investment companies,
services related to the execution of trades in the Fund's securities and advice
as to the valuation of securities. Aetna and Aeltus consider the quantity and
quality of such brokerage and research services provided by a brokerage firm
along with the nature and difficulty of the specific transaction in negotiating
commissions for trades in the Fund's securities and may pay higher commission
rates than the lowest available when it is reasonable to do so in light of the
value of the brokerage and research services received generally or in connection
with a particular transaction. Aetna and Aeltus' policy in selecting a broker to
effect a particular transaction is to seek to obtain "best execution," which
means prompt and efficient execution of the transaction at the best obtainable
price with payment of commissions which are reasonable in relation to the value
of the services provided by the broker, taking into consideration research and
other services provided. When either Aetna or Aeltus believes that more than one
broker can provide best execution, preference may be given to brokers who
provide additional services to Aetna or Aeltus.

Consistent with securities laws and regulations, Aetna and Aeltus may obtain
such brokerage and research services regardless of whether they are paid for (1)
by means of commissions; or (2) by means of separate, non-commission payments.
Aetna's and Aeltus' judgment as to whether and how they will obtain the specific
brokerage and research services will be based upon their analysis of the quality
for such services and the cost (depending upon the various methods of payment
which may be offered by brokerage firms) and will reflect Aetna's and Aeltus'
opinions as to which services and which means of payment are in the long-term
best interests of the Fund. Research services furnished by brokers through whom
the Fund effects securities transactions may be used by Aetna and Aeltus in
servicing all of their accounts; not all such services will be used to benefit
the Fund. The Fund has no present intention to effect any brokerage transactions
in Fund securities with Aetna or any affiliates of the Fund or Aetna except in
accordance with applicable Commission rules. All transactions will comply with
Rule 17e-1 under the 1940 Act.

Certain officers of Aetna and Aeltus also manage the securities portfolios of
Aetna's own accounts. Further, Aetna and Aeltus also act as investment adviser
to other investment companies registered under the 1940 Act and other client
accounts. Aetna and Aeltus have adopted policies designed to prevent
disadvantaging the Fund in placing orders for the purchase and sale of
securities for the Fund.

To the extent Aetna or Aeltus desires to buy or sell the same security at or
about the same time for more than one client, the purchases or sales will
normally be aggregated (or "bunched") and allocated as nearly as practicable on
a pro rata basis in proportion to the amounts to be purchased or sold by each,
taking into consideration the respective investment objectives of the clients,
the relative size of portfolio holdings of the same or comparable securities,
availability of cash for investment, and the size of their respective investment
commitments. Prices are averaged for those transactions. In some cases, this
procedure may

10 Aetna Variable Encore Fund

<PAGE>

adversely affect the size of the position obtained for or disposed of by the
Fund or the price paid or received by the Fund.

The Board of Trustees has adopted a policy allowing trades to be made between
registered investment companies provided they meet the terms of Rule 17a-7 under
the 1940 Act. Pursuant to this policy, the Fund may buy a security from or sell
another security to another registered investment company advised by Aetna.

The Trustees have adopted a Code of Ethics governing personal trading by persons
who manage or who have access to trading activity by a fund. The Code of Ethics
allows trades to be made in securities that may be held by a Fund; however, it
prohibits a person from taking advantage of Fund trades or from acting on inside
information.

The Fund did not pay any brokerage commissions for 1994, 1995, and 1996.

DESCRIPTION OF SHARES

Aetna Variable Encore Fund was established as a Maryland corporation in 1974 and
converted to a Massachusetts business trust on May 1, 1984. It operates under a
Declaration of Trust ("Declaration") dated January 25, 1984.

The Declaration permits the Trustees to issue an unlimited number of full and
fractional shares of beneficial interest of a single class, each of which
represents a proportionate interest in the Fund equal to each other share. The
Trustees have the power to divide or combine the shares into a greater or lesser
number of shares without thereby changing the proportional beneficial interest
in the Fund.

Upon liquidation of the Fund, shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to shareholders. Fund shares
are fully paid and non-assessable, except as set forth below.

Shareholder and Trustee Liability

The Fund is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such business trusts may, under
certain circumstances, be held personally liable as partners for the obligations
of the Fund, which is not true in the case of a corporation. The Declaration
provides that shareholders shall not be subject to any personal liability for
the acts or obligations of the Fund and that every written agreement,
obligation, instrument or undertaking made by the Fund shall contain a provision
to the effect that shareholders are not personally liable thereunder. With
respect to tort claims, contract claims where the provision referred to is
omitted from the undertaking, and claims for taxes and certain statutory
liabilities in other jurisdictions, a shareholder may be held personally liable
to the extent that claims are not satisfied by the Fund. However, upon payment
of any such liability the shareholder will be entitled to reimbursement from the
general assets of the Fund. The Trustees intend to conduct the operations of the
Fund, with the advice of counsel, in such a way as to avoid, as far as possible,
ultimate liability of the shareholders for liabilities of the Fund.

The Declaration further provides that the Trustees will not be liable for errors
of judgment or mistakes of fact or law, but nothing in the Declaration protects
a Trustee against any liability to which he or she would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.

Voting Rights

Shareholders are entitled to one vote for each full share held (and fractional
votes for fractional shares held) and will vote in the election of Trustees (to
the extent hereinafter provided) and on other matters submitted to the vote of
shareholders. The shareholders of the Fund are the insurance companies for their
separate accounts using the Fund to fund VA Contracts and VLI Policies. The
insurance company depositors of the separate accounts pass rights for shares
held for VA Contracts or VLI Policies through to Contract holders or
Participants as described in the prospectus for the applicable VA Contract or
VLI Policy. A meeting of the shareholders at which Trustees were elected was
most recently held on April

Aetna Variable Encore Fund 11

<PAGE>

13, 1994. Thereafter, no further meeting of shareholders for the purpose of
electing Trustees will be held unless and until such time as less than a
majority of the Trustees holding office have been elected by shareholders, at
which time the Trustees then in office will call a shareholders' meeting for
election of Trustees. Vacancies occurring between such meetings shall be filled
in an otherwise legal manner if, immediately after filling any such vacancy, at
least two-thirds of the Trustees holding office have been elected by
shareholders. Except as set forth above, the Trustees shall continue to hold
office and may appoint successor Trustees. Trustees may be removed from office
(1) at any time by two-thirds vote of the Trustees; (2) by a majority vote of
Trustees where any Trustee becomes mentally or physically incapacitated; (3) at
a special meeting of shareholders by a two-thirds vote of the outstanding
shares; (4) by written declaration filed with Mellon Bank, N.A., the Fund's
custodian, signed by two-thirds of the Fund's shareholders. Any Trustee may also
voluntarily resign from office.

Voting rights are not cumulative, so that the holders of more than 50% of the
shares voting in the election of Trustees can, if they choose to do so, elect
all the Trustees of the Fund, in which event the holders of the remaining shares
will be unable to elect any person as a Trustee.

The Declaration may be amended by an affirmative vote of a majority of the
shares at any meeting of shareholders or by written instrument signed by a
majority of the Trustees and consented to by a majority of the shareholders. The
Trustees may also amend the Declaration without the vote or consent of
shareholders if they deem it necessary to conform the Declaration to the
requirements of applicable federal laws or regulations or the requirements of
the regulated investment company provisions of the Internal Revenue Code of
1986, as amended, but the Trustees shall not be liable for failing to do so.

Shares have no preemptive or conversion rights.

TAX MATTERS

The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning. Holders of
VA Contracts or VLI Policies should consult the prospectuses of their respective
contracts or policies for information concerning the federal income tax
consequences of owning such VA Contracts or VLI Policies.

Qualification as a Regulated Investment Company

The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (Code). As a
regulated investment company, the Fund generally is not subject to federal
income tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (Distribution Requirement), and satisfies certain other requirements of the
Code that are described below. Distributions by the Fund made during the taxable
year or, under specified circumstances, within twelve months after the close of
the taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.

In addition to satisfying the Distribution Requirement, a regulated investment
company must: (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (Income Requirement); and (2) derive less than 30% of its gross
income (exclusive of certain gains on designated hedging transactions that are
offset by realized or unrealized losses on offsetting positions) from the sale
or other disposition of stock,

12 Aetna Variable Encore Fund

<PAGE>

securities or foreign currencies (or options, futures or forward contracts
thereon) held for less than three months (Short-Short Gain Test). However,
foreign currency gains, including those derived from options, futures and
forwards, will not in any event be characterized as Short-Short Gain if they are
directly related to the regulated investment company's investments in stock or
securities (or options or futures thereon). Because of the Short-Short Gain
Test, the Fund may have to limit the sale of appreciated securities that it has
held for less than three months. However, the Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the recognition
of a loss before the expiration of the three-month holding period is disregarded
for this purpose. Interest (including original issue discount) received by the
Fund at maturity or upon the disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of the Short-Short Gain Test.
However, income that is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.

Finally, the Fund must satisfy an asset diversification test in order to qualify
as a regulated investment company. Under this test, at the close of each quarter
of the Fund's taxable year, at least 50% of the value of the Fund's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and as to which the Fund does not hold more than 10%
of the outstanding voting securities of such issuer), and no more than 25% of
the value of its total assets may be invested in the securities of any one
issuer (other than U.S. Government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses. Generally, an
option (call or put) with respect to a security is treated as issued by the
issuer of the security not the issuer of the option. However, with regard to
forward currency contracts, there does not appear to be any formal or informal
authority which identifies the issuer of such instrument. For purposes of asset
diversification testing, obligations issued by or guaranteed by agencies and
instrumentalities of the U.S. Government such as the Federal Agricultural
Mortgage Corporation, the Farm Credit System Financial Assistance Corporation,
the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Government National Mortgage
Corporation, and the Student Loan Marketing Association are treated as U.S.
Government securities.

If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.

Qualification of Segregated Asset Accounts

Under Code section 817(h), a segregated asset account upon which a variable
annuity contract or variable life insurance policy is based must be "adequately
diversified." A segregated asset account will be adequately diversified if it
satisfies one of two alternative tests set forth in the Treasury Regulations.
Specifically, the Treasury Regulations provide, that except as permitted by the
"safe harbor" discussed below, as of the end of each calendar quarter (or within
30 days thereafter) no more than 55% of a fund's total assets may be represented
by any one investment, no more than 70% by any two investments, no more than 80%
by any three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and while each U.S. Government agency and instrumentality is considered a
separate issuer, a particular foreign government and its agencies,
instrumentalities and political subdivisions may be considered the same issuer.
As a safe harbor, a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account's total assets are cash and
cash items, U.S. government securities and securities of other regulated
investment companies.

For purposes of these alternative diversification tests, a segregated asset
account investing in shares of a regulated investment company will be entitled
to "look-through" the regulated investment company

Aetna Variable Encore Fund 13

<PAGE>

to its pro rata portion of the regulated investment company's assets, provided
the regulated investment company satisfies certain conditions relating to the
ownership of the shares.

Excise Tax on Regulated Investment Companies

A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (taxable year election)). The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed any
amount on which it is subject to income tax for any taxable year ending in such
calendar year.

For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses from Section 988 transactions incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the current
calendar year (and, instead, include such gains and losses in determining
ordinary taxable income for the succeeding calendar year).

The Fund intends to make sufficient distributions or deemed distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.

Fund Distributions

The Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
Aetna as ordinary income and treated as dividends for federal income tax
purposes.

The Fund may either retain or distribute to Aetna its net capital gain, if any,
for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to Aetna as long-term capital gain, regardless of
the length of time Aetna has held its shares or whether such gain was recognized
by the Fund prior to the date on which Aetna acquired shares. All distributions
paid to Aetna, whether characterized as ordinary income or capital gain, are not
taxable to VA Contract or VLI Policy holders.

If the Fund elects to retain its net capital gain, the Fund will be taxed
thereon (except to the extent of any available capital loss carryovers) at the
35% corporate tax rate. Where the Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.

Investment income that may be received by the Fund from sources within foreign
countries may be subject to foreign taxes withheld at the source. The United
States has entered into tax treaties with many foreign countries which entitle
the Fund to a reduced rate of, or exemption from, taxes on such income. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested in various countries is not known.

Distributions by the Fund that do not constitute ordinary income dividends or
capital gain dividends will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in his shares; any excess will
be treated as gain from the sale of his shares, as discussed below.

14 Aetna Variable Encore Fund

<PAGE>

Distributions paid to Aetna will be reinvested in additional shares.
Shareholders receiving a distribution in the form of additional shares will be
treated as receiving a distribution in an amount equal to the fair market value
of the shares received, determined as of the reinvestment date. In addition, if
the net asset value at the time a shareholder purchases shares of the Fund
reflects undistributed net investment income or recognized capital gain net
income, or unrealized appreciation in the value of the assets of the Fund,
distributions of such amounts will be taxable to the shareholder in the manner
described above, although such distributions economically constitute a return of
capital to the shareholder.

Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.

Sale or Redemption of Shares

Aetna will recognize gain or loss on the sale or redemption of shares of the
Fund in an amount equal to the difference between the proceeds of the sale or
redemption and the shareholder's adjusted tax basis in the shares. All or a
portion of any loss so recognized may be disallowed if the shareholder purchases
other shares of the Fund within 30 days before or after the sale or redemption.
In general, any gain or loss arising from (or treated as arising from) the sale
or redemption of shares of the Fund will be considered capital gain or loss and
will be long-term capital gain or loss if the shares were held for longer than
one year. However, any capital loss arising from the sale or redemption of
shares held, or deemed under Code rules to be held, for six months or less will
be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on such shares. Although gain or loss realized on shares
redeemed through the direction of VA Contract or VLI Policy holders is taxable
to Aetna or its affiliates, such VA Contract or VLI Policy holders will not be
subject to tax.

Effect of Future Legislation; Local Tax Considerations

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.

Rules of state and local taxation of ordinary income dividends and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting investment in the Fund.

PURCHASE AND REDEMPTION OF SHARES

Shares of the Fund are purchased and redeemed at the net asset value next
determined after receipt of a purchase or redemption order in acceptable form by
the Company. No sales charge or redemption charge is made.

The value of shares redeemed may be more or less than the shareholder's cost,
depending upon the market value of the portfolio securities at the time of
redemption. Payment for shares redeemed will be made to the Company by the Fund
within seven days or the maximum period allowed by law, if shorter, after the
redemption request is received by the Company acting as transfer agent for the
Fund. The right to redeem Fund shares may be suspended or payment therefore
postponed for any period during which (a) trading on the New York Stock Exchange
is restricted as determined by the Commission or such Exchange is closed for
other than weekends and holidays; (b) an emergency exists, as determined by the
Commission, as a result of which (i) disposal by the Fund of securities owned by
it is not reasonably

Aetna Variable Encore Fund 15

<PAGE>

practicable, or (ii) it is not reasonably practicable for the Fund to determine
fairly the value of its net assets; or (c) the Commission by order so permits
for the protection of shareholders of the Fund.

PRINCIPAL UNDERWRITER

The Company is the principal underwriter of the Fund pursuant to a contract
(Underwriting Agreement) between it and the Fund. The Underwriting Agreement
will remain in effect through December 1997 and may be continued annually
thereafter if approved annually by the Board of Trustees of the Fund or by a
vote of holders of a majority of the Fund's shares. This Underwriting Agreement
may be terminated at any time, by either party, without the payment of any
penalty, on sixty (60) days' written notice to the other party.

NET ASSET VALUE

Short-term debt securities which have a maturity date of more than sixty days
will be valued at the mean of the last bid and asked price obtained from
principal market makers. Generally, short-term debt securities maturing in sixty
days or less at the date of purchase will be valued using the "amortized cost"
method of valuation. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization of premium or increase of discount.

PERFORMANCE INFORMATION

Total return of a Fund for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $10,000
investment in the Fund made at the beginning of each period, then calculating
the average annual compounded rate of return which would produce the same
investment return on the $10,000 investment over the same period. Total return
for a period of one year or less is equal to the actual investment return on a
$10,000 investment in the Fund during that period. Total return calculations
assume that all Fund distributions are reinvested at net asset value on their
respective reinvestment dates.

The performance of the Fund may, from time to time, be compared to that of other
mutual funds tracked by mutual fund rating services, to broad groups of
comparable mutual funds, or to unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs.

The performance of the Fund is commonly measured as total return. An average
annual compounded rate of return ("T") may be computed by using the redeemable
value at the end of a specified period ("ERV") of a hypothetical initial
investment of $10,000 ("P") over a period of time ("n") according to the
formula:
n
P(1 + T) = ERV

The total returns of the Fund calculated based on the formula above for the one,
five and ten year periods ended December 31, 1996 are 5.37%, 4.46% and 6.08%,
respectively.

CUSTODIAN

Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, Pennsylvania 15258 serves
as custodian for assets of the Fund. The custodian does not participate in
determining the investment policies of the Fund or in deciding which securities
are purchased or sold by the Fund. The Fund, however, may invest in obligations
of the custodian and may purchase or sell securities from or to the custodian.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, CityPlace II, Hartford, Connecticut 06103-4103 serves as
independent auditors to the Fund. KPMG Peat Marwick LLP provides audit services,
assistance and consultation in connection with Commission filings.

16 Aetna Variable Encore Fund

<PAGE>

FINANCIAL STATEMENTS

Financial Statements for Aetna Variable Encore Fund are incorporated herein by
reference to the Annual Report dated December 31, 1996. The Annual Report is
available upon request and without charge by calling 1-800-525-4225 or by
writing to Aetna Variable Encore Fund at 151 Farmington Avenue, CT 06156.

Aetna Variable Encore Fund 17

<PAGE>

PART C

OTHER INFORMATION
-----------------

Item 24. Financial Statements and Exhibits
- -------------------------------------------

<TABLE>
<S> <C>
(a) Financial Statements:
(1) Included in Part A:
Financial Highlights
(2) Included in Part B by incorporation by reference to the Fund's
Annual Report dated December 31, 1996, as filed electronically
with the Securities and Exchange Commission on March 7, 1997
(File No. 811-2565):
Portfolio of Investments
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statements of Changes in Net Assets for the years ended
December 31, 1996 and 1995
Notes to Financial Statements
Independent Auditors' Report

(b) Exhibits:
(1) Charter (Declaration of Trust)(1)
(2) Amended and Restated Bylaws (adopted by Board of Directors September 14, 1994)(1)
(3) Not Applicable
(4) Instruments Defining Rights of Holders(2)
(5)(a) Investment Advisory Agreement between Aetna Life Insurance and Annuity Company
and Aetna Variable Encore Fund (August 1, 1996)
(5)(b) Subadvisory Agreement between Aetna Life Insurance and Annuity Company and Aetna
Variable Encore Fund (August 1, 1996)
(6) Underwriting Agreement between Aetna Life Insurance and Annuity Company and Aetna
Variable Encore Fund (April 30, 1996)
(7) Not Applicable
(8) Custodian Agreements and Depository Contracts
(September 1, 1992)(1)
(9) Administrative Services Agreement between Aetna Life Insurance and Annuity
Company and Aetna Variable Encore Fund (May 1, 1996)(2)
(10)(a) Opinion of Counsel(3)
(10)(b) Consent of Counsel
(11) Consent of Independent Auditors
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable

<PAGE>

(15) Not Applicable
(16) Schedule for Computation of Performance Data
(17) See Exhibit 27 below
(18) Not Applicable
(19) Powers of Attorney(4)
(27) Financial Data Schedule
</TABLE>

1. Incorporated by reference to Post-Effective Amendment No. 39 to Registration
Statement on Form N-1A (File No. 2-53038), as filed electronically on April
25, 1996.
2. Incorporated by reference to Post-Effective Amendment No. 41 to Registration
Statement on Form N-1A (File No. 2-53038), as filed electronically on June 7,
1996.
3. Incorporated by reference to Registrant's 24f-2 Notice for the fiscal year
ended December 31, 1996, as filed electronically with the Securities and
Exchange Commission on February 28, 1997.
4. Incorporated by reference to Post-Effective Amendment No. 52 to the
Registration Statement on Form N-1A (File No. 2-51739), as filed
electronically with the Securities and Exchange Commission on April 11, 1997.

<PAGE>

Item 25. Persons Controlled by or Under Common Control
- ------------------------------------------------------

Registrant is a Massachusetts business trust for which separate
financial statements are filed. As of February 28, 1997, Aetna Life
Insurance and Annuity Company owned 98.53% of Registrant's outstanding
voting securities.

Aetna Life Insurance and Annuity Company is a wholly-owned subsidiary
of Aetna Retirement Holdings, Inc., which is in turn a wholly-owned
subsidiary of Aetna Retirement Services, Inc.
and an indirect wholly-owned subsidiary of Aetna Inc.

A list of all persons directly or indirectly under common control with
the Registrant is incorporated herein by reference to Item 26 of
Post-Effective Amendment No. 2 to the Registration Statement on Form
N-4 (File No. 33-61897), as filed electronically with the Securities
and Exchange Commission on April 11, 1997.

Item 26. Number of Holders of Securities
- ----------------------------------------

(1) Title of Class (2) Number of Record Holders
-------------- ------------------------
Shares of Beneficial Interest 2 as of February 28, 1997
$1.00 par value

Item 27. Indemnification
- ------------------------

Article V of the Registrant's Declaration of Trust, which is
incorporated by reference to Exhibit 24(b)(1) to Registrant's
Post-Effective Amendment No. 39 to Registration Statement on Form N-1A
(File No. 2-53038), as filed electronically on April 25, 1996, provides
indemnification for Registrant's trustees and officers.

In addition, the Registrant's trustees and officers are covered under
director and officer liability policies, issued by National Union Fire
Insurance Company, which generally indemnify the Registrant's trustees
and officers for judgments and expenses in proceedings brought against
them solely by reason of their positions as trustees and officers (in
the absence of gross neglect or misfeasance). The policy expires on
October 1, 1997.

<PAGE>

Item 28. Business and Other Connections of Investment Adviser
- --------------------------------------------------------------

The Investment Adviser, Aetna Life Insurance and Annuity Company
(Aetna), is an insurance company that issues variable and fixed
annuities, and variable and universal life insurance policies and acts
as principal underwriter and depositor for separate accounts holding
assets for variable contracts and policies. It also acts as the
principal underwriter and investment adviser for the Registrant and
Aetna Series Fund, Inc., Aetna Variable Fund, Aetna Income Shares,
Aetna Variable Portfolios, Inc., Aetna Investment Advisers Fund, Inc.,
Aetna GET Fund, and Aetna Generation Portfolios, Inc. (all management
investment companies registered under the Investment Company Act of
1940 (1940 Act)). Additionally, Aetna acts as the principal underwriter
and depositor for Variable Annuity Account B of Aetna, Variable Annuity
Account C of Aetna, Variable Annuity Account G of Aetna, and Variable
Life Account B of Aetna (separate accounts of Aetna registered as unit
investment trusts under the 1940 Act). Aetna is also the principal
underwriter for Variable Annuity Account I of Aetna Insurance Company
of America (AICA) (a separate account of AICA registered as a unit
investment trust under the 1940 Act).

The following table summarizes the business connections of the
directors and principal officers of the Investment Adviser.

- -------------------------------------------------------------------------------
Name Positions and Offices Other Principal Position(s) Held
- ---- with Investment Adviser Since Oct. 31, 1994/Addresses*/**
----------------------- ---------------------------------

- -------------------------------------------------------------------------------
Daniel P. Kearney Director, President Director and President (since
and Executive Officer March 1996) -- Aetna Retirement
Holdings, Inc.; President (since
December 1995) -- Aetna Retirement
Services, Inc.; President (since
December 1993) -- Aetna Life
Insurance and Annuity Company;
Executive Vice President (since
December 1993) -- Aetna Inc.
(formerly Aetna Life and Casualty
Company); Director (since 1992) --
MBIA, Inc.

<PAGE>

- -------------------------------------------------------------------------------
Christopher J. Burns Director and Senior Director, Aetna Financial
Vice President Services, Inc. (since January
1996), and Aetna Investment
Services, Inc. (since July
1992) and President, Chief
Operations Officer (since
November 1996) -- Aetna
Investment Services, Inc.;
Director (since March 1996) --
Aetna Retirement Holdings, Inc.

Laura R. Estes Director and Senior Director (since December 1996)
Vice President -- Aetna Insurance Agency
Holding Company, Inc.); Director
(since March 1996) -- Aetna
Retirement Holdings, Inc; Senior
Vice President (since March 1991)
-- Aetna Life Insurance and
Annuity Company.

J. Scott Fox Director and Senior Director and Senior Vice
Vice President President (since March 1997) --
Aetna Retirement Holdings, Inc.;
Senior Vice President (since March
1997) -- Aetna Life Insurance and
Annuity Company; Managing
Director, Chief Operating Officer,
Chief Financial Officer, Treasurer
(April 1994 - March 1997) --
Aeltus Investment Management, Inc.

<PAGE>

- -------------------------------------------------------------------------------
Timothy A. Holt Director, Senior Vice Senior Vice President and Chief
President and Chief Financial Officer (since
Financial Officer February 1996) -- Aetna Life
Insurance and Annuity Company;
Vice President (June 1991 -
February 1996) -- Portfolio
Management/Investment Group, Aetna
Inc. (formerly known as Aetna Life
and Casualty Company); Director
(since March 1996) -- Aetna
Retirement Holdings, Inc.; Vice
President (since September 1996)
-- Aetna Retirement Holdings, Inc.

Gail P. Johnson Director and Vice Vice President (since December
President 1992) -- Aetna Life Insurance
and Annuity Company.

John Y. Kim Director and Senior President (since December 1995)
Vice President -- Aeltus Investment
Management, Inc.; Chief Investment
Officer (since May 1994) -- Aetna
Life Insurance and Annuity
Company.

Shaun P. Mathews Director and Vice Director (since December 1996)
President -- Aetna Insurance Agency
Holding Company, Inc.; Vice
President (since February 1996),
Senior Vice President (March 1991
- Present) -- Aetna Life Insurance
and Annuity Company; Director,
Aetna Investment Services, Inc.
(since July 1993), and Aetna
Insurance Company of America
(since February 1993).

Glen Salow Director and Vice Vice President (since 1992) --
President Aetna Life Insurance and
Annuity Company.

<PAGE>

- -------------------------------------------------------------------------------
Creed R. Terry Director and Vice Vice President (since February
President 1996), Market Strategist
(August 1995 - February 1996) --
Aetna Life Insurance and Annuity
Company; President, (1991 - 1995)
Chemical Technology Corporation (a
subsidiary of Chemical Bank).

Kirk P. Wickman Vice President, Vice President, General Counsel
General Counsel and and Corporate Secretary (since
Secretary March 1997) -- Aetna Retirement
Holdings, Inc.; Vice President,
General Counsel and Secretary
(since November 1996) -- Aetna
Life Insurance and Annuity
Company; Vice President and
Counsel (June 1992 - November
1996) -- Aetna Life Insurance
Company.

Deborah Koltenuk Vice President and Vice President, Investment
Treasurer, Corporate Planning and Financial
Controller Reporting (April 1996 to July
1996) -- Aetna Life Insurance
Company; Vice President,
Investment Planning and Financial
Reporting (October 1994 to April
1996) Aetna Life Insurance
Company, the Aetna Casualty and
Surety Company and The Standard
Fire and Insurance Company; Vice
President and Treasurer, Corporate
Controller (since March 1996) --
Aetna Retirement Holdings, Inc.

Frederick D. Kelsven Vice President and Director of Compliance (January
Chief Compliance 1985 to September 1996) --
Officer Nationwide Life Insurance
Company.

* The principal business address of each person named is 151 Farmington
Avenue, Hartford, Connecticut 06156.

<PAGE>

** Certain officers and directors of the investment adviser currently hold
(or have held during the past two years) other positions with affiliates
of the Registrant that are not deemed to be principal positions.

For information regarding Aeltus Investment Management, Inc. (Aeltus), the
subadviser for the Fund, reference is hereby made to "Management of The Fund" in
the Prospectus. For information as to the business, profession, vocation or
employment of a substantial nature of each of the officers and directors of
Aeltus, reference is hereby made to the current Form ADV (File No. 801-9046) of
Aeltus filed under the Investment Advisers Act of 1940, incorporated herein by
reference.

Item 29. Principal Underwriters
- -------------------------------

(a) In addition to serving as the principal underwriter and investment
adviser for the Registrant, Aetna Life Insurance and Annuity
Company (Aetna) also acts as the principal underwriter and
investment adviser for Aetna Variable Fund, Aetna Income Shares,
Aetna Investment Advisers Fund, Inc., Aetna Generation Portfolios,
Inc., Aetna Series Fund, Inc., Aetna GET Fund and Aetna Variable
Portfolios, Inc. (all management investment companies registered
under the Investment Company Act of 1940 (1940 Act)). Additionally,
Aetna acts as the principal underwriter and depositor for Variable
Annuity Account B of Aetna, Variable Annuity Account C of Aetna,
Variable Annuity Account G of Aetna and Variable Life Account B of
Aetna (separate accounts of Aetna registered as unit investment
trusts under the 1940 Act). Aetna is also the principal underwriter
for Variable Annuity Account I of Aetna Insurance Company of
America (AICA) (a separate account of AICA registered as a unit
investment trust under the 1940 Act).

(b) The following are the directors and principal officers of the
Underwriter:

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------------

<S> <C> <C>
Daniel P. Kearney Director and President Trustee

Timothy A. Holt Director, Senior Vice Trustee
President and Chief Financial
Officer

Christopher J. Burns Director and Senior Vice
President

Laura R. Estes Director and Senior Vice
President

J. Scott Fox Director and Senior Vice Vice President and Treasurer
President

<PAGE>

<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Principal Underwriter with Registrant
- ----------------- -------------------------- ---------------------

<S> <C> <C>
Gail P. Johnson Director and Vice President

John Y. Kim Director and Senior Vice
President

Shaun P. Mathews Director and Vice President Trustee and President

Glen Salow Director and Vice President

Creed R. Terry Director and Vice President

Kirk P. Wickman Vice President, General
Counsel and Secretary

Deborah Koltenuk Vice President and Treasurer,
Corporate Controller

Frederick D. Kelsven Vice President and Chief
Compliance Officer
</TABLE>

* The principal business address of all directors and officers listed is 151
Farmington Avenue, Hartford, Connecticut 06156.

Item 30. Location of Accounts and Records
- -----------------------------------------

As required by Section 31(a) of the 1940 Act and the rules thereunder,
the Registrant and its investment adviser, Aetna, maintain physical
possession of each account, book and other documents at their principal
place of business located at:

151 Farmington Avenue
Hartford, Connecticut 06156.

Item 31. Management Services
- ----------------------------

Not applicable.

Item 32. Undertakings
- ---------------------

The Registrant undertakes that if requested by the holders of at least
10% of the Registrant's outstanding shares, the Registrant will hold a
shareholder meeting for

<PAGE>

the purpose of voting on the removal of one or more Trustees and
will assist with communication concerning that shareholder meeting as
if Section 16(c) of the 1940 Act applied.

The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of its latest annual report to
shareholders, upon request and without charge.

Insofar as indemnification for liability arising under the Securities
Act of 1933 (1933 Act) may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.

<PAGE>

SIGNATURES
----------

Pursuant to the Securities Act of 1933 and the Investment Company Act of 1940,
Aetna Variable Encore Fund (Registrant) certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
No. 42 to Registration Statement on Form N-1A (File No. 2-53038) and has duly
caused this Post-Effective Amendment No. 42 to the Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Hartford, and State of Connecticut, on the 11th day of April, 1997.

AETNA VARIABLE ENCORE FUND
--------------------------
(Registrant)

By Shaun P. Mathews *
-------------------------------
Shaun P. Mathews
President

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement has been signed below by the following
persons on April 11, 1997 in the capacities indicated.

Signature Title Date

Shaun P. Mathews* President and Trustee )
- ------------------------ (Principal Executive Officer) )
Shaun P. Mathews
)
Morton Ehrlich* Trustee )
- ------------------------
Morton Ehrlich )
) April
Maria T. Fighetti* Trustee ) 11, 1997
- ------------------------
Maria T. Fighetti )
)
David L. Grove* Trustee )
- ------------------------
David L. Grove )
)
Timothy A. Holt* Trustee )
- ------------------------
Timothy A. Holt )
)
Daniel P. Kearney* Trustee )
- ------------------------
Daniel P. Kearney )

<PAGE>

Sidney Koch* Trustee )
- ------------------------
Sidney Koch )
)
Corine T. Norgaard* Trustee )
- ------------------------
Corine T. Norgaard )
)
Richard G. Scheide* Trustee )
- ------------------------
Richard G. Scheide )
)
J. Scott Fox* Vice President and Treasurer )
- ------------------------ (Principal Financial and Accounting
J. Scott Fox Officer) )

By: /s/ Susan E. Bryant
-------------------------------------------
*Susan E. Bryant
Attorney-in-Fact

<PAGE>

Aetna Variable Encore Fund
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
----------- ------- ----
<S> <C> <C>
99-(b)(1) Charter (Declaration of Trust) *

99-(b)(2) Amended and Restated Bylaws *

99-(b)(4) Instruments Defining Rights of Holders *

99-(b)(5)(a) Investment Advisory Agreement between Aetna
Life Insurance and Annuity Company and Aetna
Variable Encore Fund
-------------

99-(b)(5)(b) Subadvisory Agreement between Aetna Life
Insurance and Annuity Company and Aetna
Variable Encore Fund
-------------

99-(b)(6) Underwriting Agreement between Aetna Life
Insurance and Annuity Company and Aetna
Variable Encore Fund
-------------

99-(b)(8) Custodian Agreements and Depository Contracts *

99-(b)(9) Administrative Services Agreement between Aetna *
Life Insurance and Annuity Company and Aetna
Variable Encore Fund

99-(b)(10)(a) Opinion of Counsel *

99-(b)(10)(b) Consent of Counsel
-------------

99-(b)(11) Consent of Independent Auditors
-------------

99-(b)(16) Schedule for Computation of Performance Data
-------------

99-(b)(19) Powers of Attorney *

99-(b)(27) Financial Data Schedule
-------------
</TABLE>

* Incorporated herein by reference

INVESTMENT ADVISORY AGREEMENT

THIS AGREEMENT is made by and between AETNA LIFE INSURANCE AND ANNUITY COMPANY,
a Connecticut corporation (the "Adviser") and AETNA VARIABLE ENCORE FUND, a
Massachusetts business trust (the "Fund"), as of the date set forth below.

W I T N E S S E T H
- - - - - - - - - -

WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, the Adviser is registered with the Commission as an investment adviser
under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and
is in the business of acting as an investment adviser; and

WHEREAS, the Fund and the Adviser desire to enter into an agreement to provide
for investment advisory and management services for the Fund on the terms and
conditions hereinafter set forth;

NOW THEREFORE, the parties agree as follows:

I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER

Subject to the terms and conditions of this Agreement and the policies and
control of the Fund's Board of Trustees (the "Board"), the Fund hereby appoints
the Adviser to serve as the investment adviser to the Fund, to provide the
investment advisory services set forth below in Section II. The Adviser agrees
that, except as required to carry out its duties under this Agreement or
otherwise expressly authorized, it is acting as an independent contractor and
not as an agent of the Fund and has no authority to act for or represent the
Fund in any way.

II. DUTIES OF THE ADVISER

In carrying out the terms of this Agreement, the Adviser shall do the following:

1. supervise all aspects of the operations of the Fund;

2. select the securities to be purchased, sold or exchanged by the Fund or
otherwise represented in the Fund's investment portfolio, place trades
for all such securities and regularly report thereon to the Board;

3. formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Board;
<PAGE>

4. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally, the
Fund, securities held by or under consideration for the Fund, or the
issuers of those securities;

5. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;

6. obtain the services of, contract with, and provide instructions to
custodians and/or subcustodians of the Fund's securities, transfer
agents, dividend paying agents, pricing services and other service
providers as are necessary to carry out the terms of this Agreement;

7. prepare financial and performance reports, calculate and report daily
net asset values, and prepare any other financial data or reports, as
the Adviser from time to time, deems necessary or as are requested by
the Board; and

8. take any other actions which appear to the Adviser and the Board
necessary to carry into effect the purposes of this Agreement.

III. REPRESENTATIONS AND WARRANTIES

A. Representations and Warranties of the Adviser

Adviser hereby represents and warrants to the Fund as follows:

1. Due Incorporation and Organization. The Adviser is duly organized
and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.

2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under the laws of all
jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the term of
this Agreement.

3. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.

B. Representations and Warranties of the Fund

-2-
<PAGE>

The Fund hereby represents and warrants to the Adviser as follows:

1. Due Incorporation and Organization. The Fund has been duly formed
as a business trust under the laws of the Commonwealth of
Massachusetts and it is authorized to enter into this Agreement
and carry out its obligations hereunder.

2. Registration. The Fund is registered as an investment company
with the Commission under the 1940 Act and shares of the Fund are
registered for offer and sale to the public under the Securities
Act of 1933, as amended (the "1933 Act") and all applicable state
securities laws. Such registrations will be kept in effect during
the term of this Agreement.

IV. DELEGATION OF RESPONSIBILITIES

A. Appointment of Subadviser

Subject to the approval of the Board and the shareholders of the Fund, the
Adviser may enter into a Subadvisory Agreement to engage a subadviser (the
"Subadviser") to the Adviser with respect to the Fund.

B. Duties of Subadviser

Under a Subadvisory Agreement, the Subadviser may be delegated some or all
of the following duties of the Adviser:

1. select the securities to be purchased, sold or exchanged by the
Fund or otherwise represented in the Fund's investment portfolio,
place trades for all such securities and regularly report thereon
to the Board;

2. formulate and implement continuing programs for the purchase and
sale of the securities of such issuers and regularly report
thereon to the Board;

3. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy
generally, the Fund, securities held by or under consideration
for the Fund, or the issuers of those securities;

4. provide economic research and securities analyses as the Adviser
considers necessary or advisable in connection with the Adviser's
performance of its duties hereunder;

-3-
<PAGE>

5. give instructions to the custodian and/or sub-custodian of the
Fund appointed by the Board, as to deliveries of securities,
transfers of currencies and payments of cash for the Fund as
required to carry out the investment activities of the Fund, in
relation to the matters contemplated by this Agreement; and

6. provide such financial support, administrative services and other
duties as the Adviser deems necessary and appropriate.

C. Duties of the Adviser

In the event the Adviser delegates certain responsibilities hereunder to a
Subadviser, the Adviser shall, among other things:

1. monitor the investment program maintained by the Subadviser for
the Fund and the Subadviser's compliance program to ensure that
the Fund's assets are invested in compliance with the Subadvisory
Agreement and the Fund's investment objectives and policies as
adopted by the Board and described in the most current effective
amendment of the registration statement for the Fund, as filed
with the Commission under the 1933 Act and the 1940 Act
("Registration Statement");

2. review all data and financial reports prepared by the Subadviser
to assure that they are in compliance with applicable
requirements and meet the provisions of applicable laws and
regulations;

3. establish and maintain regular communications with the Subadviser
to share information it obtains with the Subadviser concerning
the effect of developments and data on the investment program
maintained by the Subadviser; and

4. oversee all matters relating to the offer and sale of the Fund's
shares, the Fund's corporate governance, reports to the Board,
contracts with all third parties on behalf of the Fund for
services to the Fund, reports to regulatory authorities and
compliance with all applicable rules and regulations affecting
the Fund's operations.

V. BROKER-DEALER RELATIONSHIPS

A. Portfolio Trades

The Adviser, at its own expense, shall place all orders for the purchase
and sale of portfolio securities for the Fund with brokers or dealers
selected by the Adviser, which may include

-4-
<PAGE>

brokers or dealers affiliated with the Adviser. The Adviser shall use its
best efforts to seek to execute portfolio transactions at prices that are
advantageous to the Fund and at commission rates that are reasonable in
relation to the benefits received.

-5-
<PAGE>

B. Selection of Broker-Dealers

In selecting broker-dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934) to the Fund and/or the other accounts over which the
Adviser or its affiliates exercise investment discretion. The Adviser may
also select brokers or dealers to effect transactions for the Fund who
provide payment for expenses of the Fund. The Adviser is authorized to pay
a broker or dealer who provides such brokerage and research services or
expenses, a commission for executing a portfolio transaction for the Fund
that is in excess of the amount of commission another broker or dealer
would have charged for effecting that transaction if the Adviser
determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer and is paid in compliance with Section 28(e) or
other rules and regulations of the Commission. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities that the Adviser and its affiliates have with respect to
accounts over which they exercise investment discretion. The Board shall
periodically review the commissions paid by the Fund to determine if the
commissions paid over representative periods of time were reasonable in
relation to the benefits received.

VI. CONTROL BY THE BOARD OF TRUSTEES

Any investment program undertaken by the Adviser pursuant to this Agreement, as
well as any other activities undertaken by the Adviser on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the Board.

VII. COMPLIANCE WITH APPLICABLE REQUIREMENTS

In carrying out its obligations under this Agreement, the Adviser shall at all
times conform to:

1. all applicable provisions of the 1940 Act, the Advisers Act and any
rules and regulations adopted thereafter;

2. all policies and procedures of the Fund as adopted by the Board and as
described in the Registration Statement;

3. the provisions of the Fund's Declaration of Trust, as amended;

4. the provisions of the Bylaws of the Fund, as amended; and

5. any other applicable provisions of state and federal law.

-6-
<PAGE>

VIII. COMPENSATION

For the services to be rendered, the facilities furnished and the expenses
assumed by the Adviser, the Fund shall pay to the Adviser an annual fee, payable
monthly, equal to .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, compensation under this Agreement shall be calculated and
accrued daily at the rate of 1/365 of .25% of the daily net assets of the Fund.
If this Agreement becomes effective subsequent to the first day of a month or
terminates before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees set forth above. Subject to the provisions of
Section X hereof, payment of the Adviser's compensation for the preceding month
shall be made as promptly as possible. For so long as a Subadvisory Agreement is
in effect, the Fund acknowledges that the Adviser will pay to the Subadviser, as
compensation for acting as Subadviser to the Fund, the fees specified in the
Subadvisory Agreement.

IX. EXPENSES

The expenses in connection with the management of the Fund shall be allocated
between the Fund and the Adviser as follows:

A. Expenses of the Adviser

The Adviser shall pay:

1. the salaries, employment benefits and other related costs and
expenses of those of its personnel engaged in providing
investment advice to the Fund, including without limitation,
office space, office equipment, telephone and postage costs;

2. all fees and expenses of all Trustees, officers and employees,
if any, of the Fund who are employees of the Adviser or an
affiliated entity, including any salaries and employment
benefits payable to those persons;

B. Expenses of the Fund

The Fund shall pay:

1. investment advisory fees pursuant to this Agreement;

2. brokers' commissions, issue and transfer taxes or other
transaction fees payable in connection with any transactions in
the securities in the Fund's investment portfolio or other
investment transactions incurred in managing the Fund's assets,
including portions of commissions that may be paid to reflect
brokerage research services provided to the Adviser;

-7-
<PAGE>

3. fees and expenses of the Fund's independent accountants and
legal counsel and the independent Trustees' legal counsel;

4. fees and expenses of any administrator, transfer agent,
custodian, dividend, accounting, pricing or disbursing agent of
the Fund;

5. interest and taxes;

6. fees and expenses of any membership in the Investment Company
Institute or any similar organization in which the Board deems
it advisable for the Fund to maintain membership;

7. insurance premiums on property or personnel (including officers
and Trustees) of the Fund which benefit the Fund;

8. all fees and expenses of the Fund's Trustees, who are not
"interested persons" (as defined in the 1940 Act) of the Fund or
the Adviser;

9. expenses of preparing, printing and distributing proxies, proxy
statements, prospectuses and reports to shareholders of the
Fund, except for those expenses paid by third parties in
connection with the distribution of Fund shares and all costs
and expenses of shareholders' meetings;

10. all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares of the
Fund or in cash;

11. costs and expenses of promoting the sale of shares in the Fund,
including preparing prospectuses and reports to shareholders of
the Fund, provided, nothing in this Agreement shall prevent the
charging of such costs to third parties involved in the
distribution and sale of Fund shares;

12. fees payable by the Fund to the Commission or to any state
securities regulator or other regulatory authority for the
registration of shares of the Fund in any state or territory of
the United States or in the District of Columbia;

13. all costs attributable to investor services, administering
shareholder accounts and handling shareholder relations,
(including, without limitation, telephone and personnel
expenses), which costs may also be charged to third parties by
the Adviser; and

14. any other ordinary, routine expenses incurred in the management
of the Fund's assets, and any nonrecurring or extraordinary
expenses, including

-8-
<PAGE>

organizational expenses, litigation affecting the Fund and any
indemnification by the Fund of its officers, Trustees or agents.

X. EXPENSE LIMITATION

If, for any fiscal year, the total of all ordinary business expenses payable by
the Fund, including all investment advisory fees but excluding brokerage
commissions, distribution fees, taxes, interest and extraordinary expenses and
certain other excludable expenses, would exceed the most restrictive expense
limits imposed by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are offered for sale (unless a waiver is obtained), the
Adviser shall reduce its advisory fee to the extent necessary to meet such
expense limit, but the Adviser will not be required to reimburse the Fund for
any ordinary business expenses which exceed the amount of its advisory fee for
such fiscal year. The amount of any such reduction is to be borne by the Adviser
and shall be deducted from the monthly advisory fee otherwise payable to the
Adviser during such fiscal year. For the purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year which shall
have elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.

XI. ADDITIONAL SERVICES

Upon the request of the Board, the Adviser may perform certain accounting,
shareholder servicing or other administrative services on behalf of the Fund
that are not required by this Agreement. Such services will be performed on
behalf of the Fund and the Adviser may receive from the Fund such reimbursement
for costs or reasonable compensation for such services as may be agreed upon
between the Adviser and the Board on a finding by the Board that the provision
of such services by the Adviser is in the best interests of the Fund and its
shareholders. Payment or assumption by the Adviser of any Fund expense that the
Adviser is not otherwise required to pay or assume under this Agreement shall
not relieve the Adviser of any of its obligations to the Fund nor obligate the
Adviser to pay or assume any similar Fund expense on any subsequent occasions.
Such services may include, but are not limited to, (a) the services of a
principal financial officer of the Fund (including applicable office space,
facilities and equipment) whose normal duties consist of maintaining the
financial accounts and books and records of the Fund and the services (including
applicable office space, facilities and equipment) of any of the personnel
operating under the direction of such principal financial officer; (b) the
services of staff to respond to shareholder inquiries concerning the status of
their accounts, providing assistance to shareholders in exchanges among the
investment companies managed or advised by the Adviser, changing account
designations or changing addresses, assisting in the purchase or redemption of
shares; or otherwise providing services to shareholders of the Fund; and (c)
such other administrative services as may be furnished from time to time by the
Adviser to the Fund at the request of the Board.

XII. NONEXCLUSIVITY

-9-
<PAGE>

The services of the Adviser to the Fund are not to be deemed to be exclusive,
and the Adviser shall be free to render investment advisory or other services to
others (including other investment companies) and to engage in other activities,
so long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers and directors of the Adviser may serve as
officers or trustees of the Fund, and that officers or trustees of the Fund may
serve as officers or directors of the Adviser to the extent permitted by law;
and that the officers and directors of the Adviser are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, officers, directors or trustees of any
other firm or trust, including other investment companies.

XIII. TERM

XIV. RENEWAL

Following the expiration of its initial term, the Agreement shall continue in
force and effect from year to year, provided that such continuance is
specifically approved at least annually:

1. a. by the Fund's trustees, or

b. by the vote of a majority of the Fund's outstanding voting
securities (as defined in Section 2(a)(42) of the 1940 Act), and

2. by the affirmative vote of a majority of the trustees who are not parties
to this Agreement or interested persons of a party to this Agreement
(other than as a trustee of the Fund), by votes cast in person at a
meeting specifically called for such purpose.

XV. TERMINATION

This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's Trustees or by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act),
or by the Adviser, on sixty (60) days' written notice to the other party. The
notice provided for herein may be waived by the party required to be notified.
This Agreement shall automatically terminate in the event of its "assignment",
as that term is defined in Section 2(a)(4) of the 1940 Act.

-10-
<PAGE>

XVI. LIABILITY

A. Liability of the Adviser

The Adviser shall be liable to the Fund and shall indemnify the Fund for
any losses incurred by the Fund, whether in the purchase, holding or sale
of any security or otherwise, to the extent that such losses resulted from
an act or omission on the part of the Adviser or its officers, Trustees or
employees, that is found to involve willful misfeasance, bad faith or
negligence, or reckless disregard by the Adviser of its duties under this
Agreement, in connection with the services rendered by the Adviser
hereunder.

B. Liability of the Fund, the Shareholders and the Trustees

A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of the Fund as
trustees and not individually and that the obligations of this instrument
are not binding upon any of the trustees or shareholders individually but
are binding only upon the assets and property of the Fund. No provision of
this Agreement shall be construed to protect any trustees or officer of
the Fund or director or officer of the Adviser, from liability in
violation of Section 17(h) and (i) of the 1940 Act.

XVII. NOTICES

Any notices under this Agreement shall be in writing, addressed and delivered,
mailed postage paid, or sent by other delivery service, or by facsimile
transmission to each party at such address as each party may designate for the
receipt of notice. Until further notice, such addresses shall be:

if to the Fund or the Adviser:

151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
Attention: Secretary

XVIII. QUESTIONS OF INTERPRETATION

This Agreement shall be governed by the laws of the State of Connecticut. Any
question of interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the 1940 Act
shall be resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Commission issued pursuant to the 1940 Act. In addition, where the effect
of a requirement of the

-11-
<PAGE>

1940 Act reflected in the provisions of this Agreement is revised by rule,
regulation or order of the Commission, such provisions shall be deemed to
incorporate the effect of such rule, regulation or order.

XIX. SERVICE MARK

The service mark of the Fund and the name "Aetna" have been adopted by the Fund
with the permission of Aetna Life and Casualty Company and their continued use
is subject to the right of Aetna Life and Casualty Company to withdraw this
permission in the event the Adviser or another subsidiary or affiliated
corporation of Aetna Life and Casualty Company should not be the investment
adviser of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 1st day of August, 1996.

AETNA LIFE INSURANCE AND ANNUITY
COMPANY

By: /s/ Shaun P. Mathews
---------------------------------
Name: Shaun P. Mathews
---------------------------------
Title: Vice President
---------------------------------
Attest:

/s/ DeAnn S. Anastasio
- ---------------------------------
DeAnn S. Anastasio AETNA VARIABLE ENCORE FUND
Assistant Corporate Secretary

By: /s/ Shaun P. Mathews
---------------------------------
Name: Shaun P. Mathews
---------------------------------
Attest: Title: President
---------------------------------

/s/ Susan E. Bryant
Susan E. Bryant
Secretary

-12-

SUBADVISORY AGREEMENT

THIS AGREEMENT is made by and among AETNA LIFE INSURANCE AND ANNUITY COMPANY, a
Connecticut insurance corporation (the "Adviser"), AETNA VARIABLE ENCORE FUND, a
Massachusetts Business Trust (the "Fund") and AELTUS INVESTMENT MANAGEMENT,
INC., a Connecticut corporation (the "Subadviser") as of the date set forth
below.

W I T N E S S E T H
-------------------

WHEREAS, the Fund is registered with the Securities and Exchange Commission (the
"Commission") as an open-end, diversified, management investment company, under
the Investment Company Act of 1940, as amended (the "1940 Act"); and

WHEREAS, both the Adviser and the Subadviser are registered with the Commission
as investment advisers under the Investment Advisers Act of 1940, as amended
(the "Advisers Act") and both are in the business of acting as investment
advisers; and

WHEREAS, the Adviser has entered into an Investment Advisory Agreement with the
Fund (the "Investment Advisory Agreement") which appoints the Adviser as the
investment adviser for the Fund; and

WHEREAS, Article IV of the Investment Advisory Agreement authorizes the Adviser
to delegate all or a portion of its obligations under the Investment Advisory
Agreement to a subadviser;

NOW THEREFORE, the parties agree as follows:

I. APPOINTMENT AND OBLIGATIONS OF THE ADVISER

Subject to the terms and conditions of this Agreement, the Adviser and the Fund
hereby appoint the Subadviser to manage the assets of the Fund as set forth
below in Section II, under the supervision of the Adviser and subject to the
approval and direction of the Fund's Board of Trustees (the "Board"). The
Subadviser hereby accepts such appointment and agrees that it shall, for all
purposes herein, undertake such obligations as an independent contractor and not
as an agent of the Adviser. The Subadviser agrees, that except as required to
carry out its duties under this Agreement or otherwise expressly authorized, it
has no authority to act for or represent the Fund in any way.

II. DUTIES OF THE SUBADVISER AND THE ADVISER

A. Duties of the Subadviser

<PAGE>

The Subadviser shall regularly provide investment advice with respect to
the assets held by the Fund and shall continuously supervise the
investment and reinvestment of cash, securities and instruments or other
property comprising the assets of the Fund. In carrying out these duties,
the Subadviser shall:

2. formulate and implement continuing programs for the purchase and
sale of securities and regularly report thereon to the Adviser
and, at the request of the Adviser or the Fund, to the Board;

4. provide economic research and securities analyses as requested by
the Adviser from time to time, or as the Adviser considers
necessary or advisable in connection with the Subadviser's
performance of its duties hereunder; and

5. give instructions to the custodian and/or sub-custodian of the
Fund appointed by the Board, concerning deliveries of securities,
transfers of currencies and payments of cash for the Fund, as
required to carry out the investment activities of the Fund as
contemplated by this Agreement; and

6. provide such financial support, administrative and other
services, such as preparation of financial data, determination of
the Fund's net asset value, preparation of financial and
performance reports, as the Adviser from time to time, deems
necessary and appropriate and which the Subadviser is willing and
able to provide.

B. Duties of the Adviser

The Adviser shall retain responsibility for oversight of all activities of
the Subadviser and for monitoring its activities on behalf of the Fund. In
carrying out its obligations under this Agreement and the Investment
Advisory Agreement, the Adviser shall:

-2-
<PAGE>

the most current effective amendment of the registration
statement for the Fund, as filed with the Commission under the
Securities Act of 1933 (the "1933 Act"), as amended, and the 1940
Act ("Registration Statement");

2. review all data and financial reports prepared by the Subadviser
to assure that they are in compliance with applicable
requirements and meet the provisions of applicable laws and
regulations;

3. file all periodic reports required to be filed by the Fund with
the applicable regulatory authorities;

4. review and deliver to the Board all financial, performance and
other reports prepared by the Subadviser under the provisions of
this Agreement or as requested by the Adviser;

5. establish and maintain regular communications with the Subadviser
to share information it obtains concerning the effect of
developments and data on the investment program maintained by the
Subadviser;

6. maintain contact with and enter into arrangements with the
custodian, transfer agent, auditors, outside counsel, and other
third parties providing services to the Fund;

7. oversee all matters relating to (i) the offer and sale of shares
of the Fund, including promotions, marketing materials,
preparation of prospectuses, filings with the Commission and
state securities regulators, and negotiations with
broker-dealers; (ii) shareholder services, including,
confirmations, correspondence and reporting to shareholders;
(iii) all corporate matters on behalf of the Fund, including
monitoring the corporate records of the Fund, maintaining contact
with the Board, preparing for, organizing and attending meetings
of the Board and the Fund's shareholders; (iv) preparation of
proxies when required; and (v) any other matters not expressly
delegated to the Subadviser by this Agreement.

III. REPRESENTATIONS AND WARRANTIES

A. Representations and Warranties of the Subadviser

The Subadviser hereby represents and warrants to the Adviser as follows:

1. Due Incorporation and Organization. The Subadviser is duly
organized and is in good standing under the laws of the State of
Connecticut and is fully authorized to enter into this Agreement
and carry out its duties and obligations hereunder.

-3-
<PAGE>

2. Registration. The Subadviser is registered as an investment
adviser with the Commission under the Advisers Act, and is
registered or licensed as an investment adviser under all of the
laws of all jurisdictions in which its activities require it to
be so registered or licensed. The Subadviser shall maintain such
registration or license in effect at all times during the term of
this Agreement.

3. Regulatory Orders. The Subadviser is not subject to any stop
orders, injunctions or other orders of any regulatory authority
affecting its ability to carry out the terms of this Agreement.
The Subadviser will notify the Adviser and the Fund immediately
if any such order is issued or if any proceeding is commenced
that could result in such an order.

4. Compliance. The Subadviser has in place compliance systems and
procedures designed to meet the requirements of the Advisers Act
and the 1940 Act and it shall at all times assure that its
activities in connection with managing the Fund follow these
procedures.

5. Authority. The Subadviser is authorized to enter into this
Agreement and carry out the terms hereunder.

6. Best Efforts. The Subadviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.

B. Representations and Warranties of the Adviser

The Adviser hereby represents and warrants to the Subadvisor as follows:

2. Registration. The Adviser is registered as an investment adviser
with the Commission under the Advisers Act, and is registered or
licensed as an investment adviser under all of the laws of all
jurisdictions in which its activities require it to be so
registered or licensed. The Adviser shall maintain such
registration or license in effect at all times during the term of
this Agreement.

3. Regulatory Orders. The Adviser is not subject to any stop orders,
injunctions or other orders of any regulatory authority affecting
its ability to carry out the terms of this Agreement. The Adviser
will notify the

-4-
<PAGE>

Subadviser and the Fund immediately if any such order is issued
or if any proceeding is commenced that could result in such an
order.

4. Authority. The Adviser is authorized to enter into this Agreement
and carry out the terms hereunder.

5. Best Efforts. The Adviser at all times shall provide its best
judgment and effort to the Fund in carrying out its obligations
hereunder.

C. Representations and Warranties of the Fund

The Fund hereby represents and warrants to the Adviser as follows:

2. Registration. The Fund is registered as an investment company
with the Commission under the 1940 Act and shares of the Fund are
registered for offer and sale to the public under the 1933 Act
and all applicable state securities laws. Such registrations will
be kept in effect during the term of this Agreement.

IV. BROKER-DEALER RELATIONSHIPS

A. Portfolio Trades

The Subadviser shall place all orders for the purchase and sale of
portfolio securities for the Fund with brokers or dealers selected by the
Subadviser, which may include brokers or dealers affiliated with the
Subadviser. The Subadviser shall use its best efforts to seek to execute
portfolio transactions at prices that are advantageous to the Fund giving
consideration to the services and research provided and at commission
rates that are reasonable in relation to the benefits received.

B. Selection of Broker-Dealers

-5-
<PAGE>

executing a portfolio transaction for the Fund that is in excess of the
amount of commission another broker or dealer would have charged for
effecting that transaction if the Subadviser determines in good faith that
such amount of commission is reasonable in relation to the value of the
brokerage, research and other services provided by such broker or dealer
and is paid in compliance with Section 28(e) or other rules and
regulations of the Commission. This determination may be viewed in terms
of either that particular transaction or the overall responsibilities that
the Subadviser and its affiliates have with respect to accounts over which
they exercise investment discretion. The Board shall periodically review
the commissions paid by the Fund to determine if the commissions paid over
representative periods of time were reasonable in relation to the benefits
received.

V. CONTROL BY THE BOARD OF TRUSTEES

Any investment program undertaken by the Subadviser pursuant to this Agreement,
as well as any other activities undertaken by the Subadviser at the direction of
the Adviser with respect to the Fund, shall at all times be subject to any
directives of the Board.

VI. COMPLIANCE WITH APPLICABLE REQUIREMENTS

In carrying out its obligations under this Agreement, the Subadviser shall at
all times conform to:

1. all applicable provisions of the 1940 Act, the Advisers Act and any
rules and regulations adopted thereunder;

2. all policies and procedures of the Fund as adopted by the Board and as
described in the Registration Statement;

3. the provisions of the Declaration of Trust of the Fund, as amended from
time to time;

4. the provisions of the Bylaws of the Fund, as amended from time to time;
and

5. any other applicable provisions of state or federal law.

VII. COMPENSATION

A. Payment Schedule

The Adviser shall pay the Subadviser, as compensation for services
rendered hereunder, from its own assets, an annual fee of up to .15% of
the average daily net assets in the Fund, payable monthly. Except as
hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily at the rate of 1/365 of the annual
Subadvisory fee of up to

-6-
<PAGE>

.15% applied to the daily net assets of the Fund. If this Agreement
becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of
the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.

-7-

<PAGE>

B. Reduction

Payment of the Subadviser's compensation for the preceding month shall be
made as promptly as possible, except as provided below. The Subadviser
acknowledges that, pursuant to the Investment Advisory Agreement, the
Adviser has agreed to reduce its fee or reimburse the Fund if the expenses
borne by the Fund exceed the expense limitations applicable to the Fund
imposed by the securities laws or regulations of any jurisdiction in which
the Fund shares are qualified for sale. Accordingly, the Subadviser agrees
that, if, for any fiscal year, the total of all ordinary business expenses
of the Fund, including all investment advisory fees but excluding
brokerage commissions, distribution fees, taxes, interest, extraordinary
expenses and certain other excludable expenses, would exceed the most
restrictive expense limits imposed by any statute or regulatory authority
of any jurisdiction in which shares of the Fund are offered for sale
(unless a waiver is obtained), the Subadviser shall reduce its advisory
fee to the extent necessary to meet such expense limit, but will not be
required to reimburse the Fund for any ordinary business expenses which
exceed the amount of its advisory fee for the fiscal year. The Subadviser
shall contribute to the amount of such reduction by reimbursing the
Adviser in proportion to the amounts which the Adviser and Subadviser
would have been entitled to receive for such year. For the purposes of
this paragraph, the term "fiscal year" shall exclude the portion of the
current fiscal year which elapsed prior to the effective date of this
Agreement, but shall include the portion of the then current fiscal year
has elapsed at the date of termination of this Agreement.

VIII. ALLOCATION OF EXPENSES

The Subadviser shall pay the salaries, employment benefits and other related
costs of those of its personnel engaged in providing investment advice to the
Fund hereunder, including, but not limited to, office space, office equipment,
telephone and postage costs. In the event the Subadviser incurs any expense that
is the obligation of the Adviser as set out in this Agreement, the Adviser shall
reimburse the Subadviser for such expense on presentation of a statement
indicating the expenses incurred and the amount paid by the Subadviser.

IX. NONEXCLUSIVITY

The services of the Subadviser with respect to the Fund are not to be deemed to
be exclusive, and the Subadviser shall be free to render investment advisory and
administrative or other services to others (including other investment
companies) and to engage in other activities. It is understood and agreed that
officers or directors of the Subadviser may serve as officers or directors of
the Adviser or officers or trustees of the Fund; that officers or directors of
the Adviser or officers or trustees of the Fund may serve as officers or
directors of the Subadviser to the extent permitted by law; and that the
officers and directors of the Subadviser are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, officers, directors or trustees of any other firm or trust,
including other investment advisory companies.

-8-
<PAGE>

X. TERM

This Agreement shall become effective at the close of business on July 31, 1996,
and shall remain in force and effect through December 31, 1997, unless earlier
terminated under the provisions of Article XI. Following the expiration of its
initial term, the Agreement shall continue in force and effect for one year
periods, provided such continuance is specifically approved at least annually:

1. (a) by the Fund's trustees or (b) by the vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of
the 1940 Act), and

2. by the affirmative vote of a majority of the trustees who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a trustee of the Fund), by votes cast in
person at a meeting specifically called for such purpose.

XI. TERMINATION

This Agreement may be terminated:

1. at any time, without the payment of any penalty, by vote of the Fund's
trustees or by vote of a majority of the outstanding voting securities
of the Fund; or

2. by the Adviser, the Fund or the Subadviser on sixty (60) days' written
notice to the other party, unless written notice is waived by the party
required to be notified; or

3. automatically in the event there is an "assignment" of this Agreement,
as defined in Section 2 (a) (4) of the 1940 Act.

XII. LIABILITY

A. Liability of the Subadviser

The Subadviser shall be liable to the Fund and the Adviser and shall
indemnify the Fund and the Adviser for any losses incurred by the Fund, or
the Adviser whether in the purchase, holding or sale of any security or
otherwise, to the extent that such losses resulted from an act or omission
on the part of the Subadviser or its officers, directors or employees,
that is found to involve willful misfeasance, bad faith or negligence, or
reckless disregard by the Subadviser of its duties under this Agreement,
in connection with the services rendered by the Subadviser hereunder.

B. Liability of the Fund, the Shareholders and the Trustees

-9-
<PAGE>

A copy of the Declaration of Trust of the Fund is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the trustees of the Fund as
trustees and not individually and that the obligations of this instrument
are not binding upon any of the trustees or shareholders individually but
are binding only upon the assets and property of the Fund. No provision of
this Agreement shall be construed to protect any trustee or officer of the
Fund or director or officer of the Adviser, from liability in violation of
Section 17(h) and (i) of the 1940 Act.

XIII. NOTICES

if to the Fund or the Adviser:

151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340
Attn: Secretary

if to the Subadviser:

242 Trumbull Street
Hartford, Connecticut 06103-1205
Fax number: 860/275-4440
Attention: President

XIV. QUESTIONS OF INTERPRETATION

-10-
<PAGE>

XV. SERVICE MARK

The service mark of the Fund and Adviser, and the name "Aetna" have been adopted
by the Fund with the permission of Aetna Life and Casualty Company and their
continued use is subject to the right of Aetna Life and Casualty Company to
withdraw this permission in the event the Subadviser or another subsidiary or
affiliated corporation of Aetna Life and Casualty Company should not be the
investment adviser of the Fund.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 1st day of August, 1996.

Aetna Life Insurance and Annuity Company

By: /s/ Shaun P. Mathews
----------------------------------
Attest: Name: Shaun P. Mathews
Title: Vice President
/s/ DeAnn S. Anastasio
- -----------------------------
DeAnn S. Anastasio
Assistant Corporate Secretary

Aeltus Investment Management, Inc.

Attest: By: /s/ John Y. Kim
----------------------------------
Name: John Y. Kim
Title: President
/s/ Melinda L. Dziavit
- -----------------------------
Melinda L. Dziavit
Asst. Secretary Aetna Variable Encore Fund

By: /s/ Shaun P. Mathews
----------------------------------
Name: Shaun P. Mathews
Attest: Title: President

/s/ Susan E. Bryant
- -----------------------------
Susan E. Bryant
Secretary

-11-

AETNA VARIABLE ENCORE FUND
UNDERWRITING AGREEMENT

THIS AGREEMENT, is entered into this 30th day of April, 1996, by and between
Aetna Life Insurance and Annuity Company, Inc., a Connecticut corporation
(Aetna), and Aetna Variable Encore Fund, a Massachusetts Business Trust (Fund).

WHEREAS, the Fund is an open-end management investment company registered with
the Securities and Exchange Commission (Commission) under the Investment Company
Act of 1940, as amended (1940 Act); and

WHEREAS the Fund has registered the shares of its common stock (Shares) for
offer and sale to the public under the Securities Act of 1933, as amended; and

WHEREAS, the Fund wishes to retain Aetna, and Aetna is willing to act, as
principal underwriter in connection with the offer and sale of the Shares; and

NOW, THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties agree as follows:

1. Appointment of Underwriter. The Fund hereby appoints Aetna and Aetna hereby
accepts appointment as underwriter in connection with the distribution of the
Shares. The Fund authorizes Aetna to solicit orders for the purchase of the
Shares as set forth in the Registration Statement currently effective with the
Commission for the Shares. It is understood that the Shares are offered only
through variable annuity contracts and variable life policies issued by Aetna
and its affiliates.

2. Compensation. Aetna shall receive no separate compensation for providing
services under this Agreement. It is understood that the compensation Aetna
receives in connection with the issuance of the variable annuity contracts or
variable life policies shall be the only consideration it receives for serving
as underwriter hereunder.

3. Aetna Expenses. Aetna shall be responsible for any costs of printing and
distributing prospectuses and statements of additional information necessary to
offer and sell the Shares, and such other sales literature, reports, forms and
advertisements in connection as it elects to prepare, provided such materials
comply with the applicable provisions of federal and state law.

4. Fund Expenses. The Fund shall be responsible for the costs of registering the
Shares with the Commission and for the costs of preparing prospectuses,
statements of additional information and such other documents as are required to
maintain the registration of the Shares with the Commission.

5. Share Certificates. The Fund shall not issue certificates representing
Shares.

<PAGE>

6. Status of underwriter and Other Persons. Aetna is an independent contractor
and shall be agent for the Fund only in respect to the sale and redemption of
the Shares. Any person, even though also an officer, director, employee or agent
of Aetna, who may be or become an officer, director, employee or agent of the
Fund, shall be deemed, when rendering services to the Fund or acting in any
business of the Fund, to be rendering such services to or acting solely for the
Fund and not as an officer, director, employee or agent or one under the control
or direction of Aetna even though paid by Aetna.

7. Nonexclusivity. The services of Aetna to the Fund under this Agreement are
not to be deemed exclusive, and Aetna shall be free to render similar services
or other services to others and to engage in other activities related or
unrelated to those provided under this agreement.

8. Effectiveness and Termination of Agreement. This Agreement shall become
effective at the close of business on the date set forth in the first paragraph
of this Agreement and shall remain in force and effect, through December 31,
1997, unless earlier terminated under the provisions of Section 9. Following the
expiration of its initial term, the Agreement shall continue in force and effect
for one year periods, provided such continuance is specifically approved at
least annually by the Fund's trustees, or by the vote of a majority of the
Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act.

9. Termination. This Agreement may be terminated at any time, by either party,
without the payment of any penalty, on sixty (60) days' written notice to the
other party.

10. Liability of Aetna. Aetna shall be liable to the Fund and shall indemnify
the Fund for any losses incurred by the Fund, to the extent that such losses
resulted from an act or omission on the part of Aetna or its officers, directors
or employees in carrying out its duties hereunder, that is found to involve
willful misfeasance, bad faith or negligence, or reckless disregard by Aetna of
its duties under this Agreement.

11. Liability of Trustees. A copy of the Declaration of Trust of the Fund is on
file with the Secretary of The Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the trustees of the
Fund as trustees and not individually and that the obligations of this
instrument are not binding upon any of the trustees or shareholders individually
but are binding only upon the assets and property of the Fund. No provision of
this Agreement shall be construed to protect any trustee or officer of the Fund
or director or officer of the Aetna, from liability in violation of Section
17(h) and (i) of the 1940 Act.

12. Amendments. This Agreement may be amended or changed only by an instrument
in writing signed by both parties.

13. Applicable Law. This Agreement shall be construed in accordance with the
laws of the State of Connecticut and the 1940 Act. To the extent that the
applicable laws of the State of Connecticut conflict with the applicable
provisions of the 1940 Act, however, the latter shall control.

-2-
<PAGE>

14. Notices. Any notices under this Agreement shall be in writing, addressed and
delivered, mailed postage paid, or sent by other delivery service, or by
facsimile transmission to each party at such address as each party may designate
for the receipt of notice. Until further notice, such addresses shall be:

if to the Fund or Aetna:

151 Farmington Avenue, RE4C
Hartford, Connecticut 06156
Fax number: 860/273-8340

15. Questions of Interpretation. This Agreement shall be governed by the laws of
the State of Connecticut. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from a
term or provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States Courts or, in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Commission issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
the provisions of this Agreement is revised by rule, regulation or order of the
Commission, such provisions shall be deemed to incorporate the effect of such
rule, regulation or order.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the 30th day of April, 1996.

AETNA LIFE INSURANCE AND ANNUITY
COMPANY

Attest: By:/s/Shaun P. Mathews
--------------------------------
Name:Shaun P. Mathews
------------------------------
/s/DeAnn S. Anastasio Title:Vice President
- ------------------------ -----------------------------
Assistant Secretary

AETNA VARIABLE ENCORE FUND

By:/s/Shaun P. Mathews
--------------------------------
Name:Shaun P. Mathews
------------------------------
Attest: Title:President
-----------------------------

/s/Susan E. Bryant
- ------------------------
Secretary

151 Farmington Avenue
Hartford, CT 06156

April 11, 1997 Susan E. Bryant
Counsel
Law Division, RE4A
Investments & Financial
Services
(860) 273-7834
Fax: (860) 273-0356

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Dear Sir or Madam:

As Counsel of Aetna Life Insurance and Annuity Company (the "Company"), I hereby
consent to the use of my opinion dated February 28, 1997 (incorporated by
reference to the Rule 24f-2 Notice for the fiscal year ended December 31, 1996
filed on behalf of Aetna Variable Encore Fund) as an exhibit to this
Post-Effective Amendment No. 42 on Form N-1A to Registration Statement (File
Nos. 2-53038 and 811-2565).

Sincerely,

/s/ Susan E. Bryant
Susan E. Bryant
Counsel

Consent of Independent Auditors

The Board of Trustees
Aetna Variable Encore Fund:

We consent to the use of our report incorporated herein by reference and to the
references to our Firm under the headings "Financial Highlights" in the
Prospectus and "Independent Auditors" in the Statement of Additional
Information.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

April 11, 1997
Hartford, Connecticut

SCHEDULE FOR COMPUTATION OF PERFORMANCE DATA

AETNA VARIABLE ENCORE FUND

TOTAL RETURN CALCULATION
One Year Period Ended December 31, 1996

n
Formula P (1+T) = ERV

Initial Investment 10,000.00 = P
Ending Redeemable Value 10,536.92 = ERV
One Year Period Ended 12/31/96 1 = n

TOTAL RETURN FOR THE PERIOD 5.37% = T

TOTAL RETURN CALCULATION
Five Year Period Ended December 31, 1996

n
Formula P (1+T) = ERV

Initial Investment 10,000.00 = P
Ending Redeemable Value 12,439.01 = ERV
Five Year Period Ended 12/31/96 5 = n

TOTAL RETURN FOR THE PERIOD 4.46% = T

<PAGE>

TOTAL RETURN CALCULATION
Ten Year Period Ended December 31, 1996

n
Formula P (1+T) = ERV

Initial Investment 10,000.00 = P
Ending Redeemable Value 18,049.42 = ERV
Ten Year Period Ended 12/31/96 10 = n

TOTAL RETURN FOR THE PERIOD 6.08% = T

<ARTICLE> 6
<CIK> 0000002663
<NAME> AETNA VARIABLE ENCORE FUND

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 609,672,569
<INVESTMENTS-AT-VALUE> 609,757,291
<RECEIVABLES> 4,178,561
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 613,935,852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 430,514
<TOTAL-LIABILITIES> 430,514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 589,073,309
<SHARES-COMMON-STOCK> 46,499,453
<SHARES-COMMON-PRIOR> 38,656,540
<ACCUMULATED-NII-CURRENT> 24,410,184
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (62,877)
<ACCUM-APPREC-OR-DEPREC> 84,722
<NET-ASSETS> 613,505,338
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 30,927,131
<OTHER-INCOME> 0
<EXPENSES-NET> (1,878,806)
<NET-INVESTMENT-INCOME> 29,048,325
<REALIZED-GAINS-CURRENT> 874
<APPREC-INCREASE-CURRENT> (22,687)
<NET-CHANGE-FROM-OPS> 29,026,512
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,468,844)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,539,460
<NUMBER-OF-SHARES-REDEEMED> (18,290,210)
<SHARES-REINVESTED> 2,593,663
<NET-CHANGE-IN-ASSETS> 99,468,735
<ACCUMULATED-NII-PRIOR> 28,830,703
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (63,751)
<GROSS-ADVISORY-FEES> 1,386,027
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,878,806
<AVERAGE-NET-ASSETS> 554,394,696
<PER-SHARE-NAV-BEGIN> 13.298
<PER-SHARE-NII> 0.697
<PER-SHARE-GAIN-APPREC> (0.001)
<PER-SHARE-DIVIDEND> (0.800)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.194
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>